(Yicai) Feb. 26 -- The steady appreciation of China’s currency against the US dollar has continued after the lunar new year holiday, taking the yuan to its highest level in nearly three years today, and the advance may continue, albeit at a slower pace, analysts told Yicai.

The yuan peaked at 6.83605 versus the dollar in offshore trading, strengthening by more than 0.25 percent compared with the previous trading day. The offshore rate is considered to offer a truer picture of international investor sentiment in the redback.

The People’s Bank of China raised the yuan’s central parity rate against the dollar by 93 basis points today, standing at 6.9228. In the previous trading session, the offshore yuan surpassed the 6.87 mark against the greenback, reaching a high not seen since April 2023.

The central parity rate has appreciated by nearly 300 basis points so far this month, with the offshore yuan appreciating by over 1 percent against the dollar.

Two key reasons behind this have been the stabilization of China-US economic and trade relations and the overall improvement of China's external environment since November, said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International. The US dollar has also weakened, which has fueled appreciations in other currencies, including the yuan. 

Another factor is that the yuan’s advance has led to the release of pent-up demand for foreign exchange settlements from exporters, Wang added. In December and last month, the surplus in forex settlement by banks on behalf of clients reached USD99.93 billion and USD88.76 billion, respectively -- the largest and third-largest monthly surpluses on record.

The demand for currency conversions among exporters, principally US dollar sales, typically supports yuan strength.

Chen Liqing, a senior economic analyst at GF Securities, pointed out that although the yuan has done well recently, multiple factors are at play.

For instance, maintaining the exchange rate at a reasonable and balanced level remains a core government policy, and seasonal settlement demand is expected to gradually decline. Chen predicted that the pace of the appreciation will ease off, with a moderate upward trend throughout the year.

The likelihood of a significant rebound in the US Dollar Index -- a measure of the greenback's value relative to a basket of other currencies -- is relatively low in the short term, Wang pointed out, adding that he expects the yuan to remain in a relatively strong position for some time after the Chinese New Year. 

Looking at the year ahead, he said, the exchange rate will mainly depend on three factors: the US dollar's performance, changes in China's external economic and trade environment, and the effectiveness of domestic policies to stabilize growth.

Editor: Tom Litting