(Yicai Global) May 26 -- The yuan appreciated against the US dollar today, falling below 6.4 against the greenback for the first time since June 2018. Experts said the key factor was a weakening US dollar index.

The onshore yuan opened at 6.4059 before reaching 6.3919, while offshore the redback opened in Hong Kong at 6.4081 before hitting 6.3754. The People’s Bank of China fortified the yuan by 184 basis points this morning, fixing the central parity rate at 6.4099, the strongest for three years. It stood at about 7.1 last May.

A weakening US dollar index was the main reason for the yuan’s gains, according to a report from China International Capital today. Tan Yaling, head of the China Academy of Foreign Exchange Investment, agreed, adding that the market was leaning toward yuan appreciation.

The currency advanced 2.5 percent against the dollar between early last month and yesterday, and the US dollar index dropped about 3.5 percent in the same period.

China News reported that foreign funds have been flowing into China’s foreign exchange and stock markets as the country’s economy has been recovering, and it is usual for such funds to take advantage of favorable opportunities for arbitrage and hedging, thereby also boosting the yuan.

The inclusion of Chinese government bonds in FTSE Russell’s indexes in October will result in passive capital inflows in the second half, CICC Macro Economy said, predicting the current account surplus will be lower than last year, and growth is likely to slow amid further global economic recovery, a pickup in overseas production capacity and higher import prices.

The yuan may have limited room to appreciate further, CICC Macro Economy added, saying that significant downward pressure is unlikely.

The yuan exchange rate has been basically stable at a reasonable level this year, PBOC Vice Governor Liu Guoqiang told reporters on May 23. China's foreign exchange market is autonomously balanced, and the exchange rate is determined by the market and is expected to be stable, he added.

Recent expectations for yuan appreciation have driven the yuan’s advance to a certain degree, Tan noted, but the exchange rate is unlikely to continue strengthening significantly.

Editor: Tom Litting