(Yicai Global) Aug. 19 -- The Chinese yuan rose 160 basis points to 6.9257 against the US dollar yesterday, a new high since Jan. 22, with the dollar index falling to a 27-month low of 92.4981 at one point.

The yuan’s spot exchange rate against the dollar rose further over night, with the highest appreciation to 6.9202.

The dollar index began to decline in June amid a greenback selloff due to a weak US economy and falling demand for safe-havens, triggering market speculation on whether the index will continue to fall.

Monetary policy, economic fundamentals and risk aversion are the three important factors currently affecting the index, Ming Ming, head of fixed income research at CITIC Securities, said in a report.

From the perspective of monetary policy, the US Federal Reserve's large-scale easing policy since the Covid-19 pandemic is the main reason for the market's long-term bearishness on the buck, Ming said. The market generally expects the Fed to continue easing. US economic fundamentals are also an important factor affecting the dollar index.

The US dollar’s hedging properties during the pandemic are also very significant, so risk averse sentiment on the US dollar index cannot be ignored. Considering the possible fluctuations in China-US relations and the recent phased adjustment of the US dollar, the exchange rate may remain volatile, Ming added.

Asian emerging market currencies will gradually appreciate against the dollar, said Zhao Yaoting, a global market strategist at Invesco Asia Pacific. He has started to become more optimistic about Asian emerging market government bonds and credit, The Paper cited him as saying.

Most of those countries have not only controlled the pandemic to a great extent, but many also enjoy higher real interest rates, which means that their central banks are able to ease monetary policy further to soften any economic downturn.

Editor: Ben Armour