(Yicai) April 9 -- The Chinese yuan climbed to a three-year high against the US dollar yesterday, driven by stronger domestic economic expectations, export-related settlement demand, and a weaker greenback.

The onshore yuan closed at 6.8274 versus the dollar, up 323 basis points compared with the previous trading day and its strongest level since Feb. 15, 2023. The offshore yuan touched 6.8215 intraday, the highest since April 2023.

The People’s Bank of China set the central parity rate for the yuan, or renminbi, 174 bips stronger yesterday at 6.8680. This daily fixing, around which the onshore yuan is permitted to trade 2 percent higher or lower, is announced each morning.

At the same time, the US Dollar Index, a measure of the greenback's value relative to a basket of other currencies, fell to as low as 98.68 from around 99.65.

The yuan's recent rapid appreciation is being driven by three factors, said Pang Ming, a senior fellow at the National Institution for Finance and Development. First, rising expectations for strong first-quarter economic data, sustained confidence in a recovery in domestic consumption and investment, and improving economic fundamentals have together attracted short-term capital inflows, increasing demand for the yuan.

Second, exporters rushed to convert foreign exchange earnings after settling their first-quarter accounts, and once the yuan broke through key thresholds, a wave of settlement orders flooded in, rapidly drawing down dollar holdings and boosting the yuan, Pang said.

Lastly, the US Dollar Index lost steam after rising sharply last month, and a pullback in safe-haven demand provided a favorable external backdrop for yuan revaluation, he added.

The CFETS RMB Index and other yuan basket indexes, which reflect the currency's overall level, have steadily risen to a more than one-year high, Wang Qing, chief macro analyst at Golden Credit Ratings, pointed out.

This reflects China’s stable external trade environment, sustained strong export growth, and improved consumption and investment at the start of the year, all of which have provided solid fundamental support for the redback, Wang said.

The currency will likely enter a phase of short-term two-way volatility and moderate long-term appreciation, according to Pang. As the pent-up foreign exchange settlement demand is released, some technical correction pressure may emerge above 6.8, he noted, adding that regulators have consistently emphasized two-way flexibility around an equilibrium rate, ruling out one-sided appreciation, a stance that should help anchor market expectations.

Given given the more stable external trade environment, ongoing policy support for expanding domestic demand, and relatively elevated currency market sentiment, the yuan is likely to maintain a firm and steady trend as the US Dollar Index as the dollar index swings sharply, Wang said.

Editor: Martin Kadiev