(Yicai Global) Dec. 27 -- As China's yuan appreciates, analysts are generally optimistic about its trend next year and believe the central level of the redback's exchange rate against the US dollar may return to within seven next year, the Beijing News reported today.

The Federal Reserve's suspension of interest rate cuts may slightly perturb emerging market currencies short term, but the yuan exchange rate is expected to remain stable next year as the Fed resumes interest rate cuts and the undervaluation of the Chinese currency's effective exchange rate over the equilibrium exchange rate gradually corrects in the long run, said Hong Kong-based investment banker ICBC International Holdings.

China Merchants Bank's financial markets team forecasts the Chinese currency will seasonally appreciate in January, driven by the exporters' settlement of foreign exchange before the country's week-long Spring Festival holiday late next month. The yuan-dollar central parity rate may fall slightly to about 6.9 by the end of next year, observers predict.

The central level of a currency's exchange rate is determined by the country's economic fundamentals that form spontaneously in the market. The exchange rate will fluctuate around the central level, but fleeting changes do not affect it.

The yuan is appreciating this month. The redback's central parity rate against the US dollar was 6.9801 yesterday, up 266 basis points from the previous day. The parity has risen by about 600 basis points in the past month, according to the Beijing News' figures. It reached a post-Aug. 6 trough yesterday in the largest drop since Nov. 6.

China and the US have recently reached their first-phase economic and trade agreement, which restores the world's sound expectations for bilateral economic development and helps steady the yuan exchange rate, said Han Wenlong, director of the Department of Economics at the School of Economics at the prestigious Southwestern University of Finance and Economics in Sichuan province.

China's economy maintained stable and progressive development, the National Bureau of Statistics said in its national economic operation for report last month, Han said, adding the recent Central Economic Work Conference has pledged its fidelity to the general work guideline of making progress while maintaining stability, news that will bolster domestic and foreign investors' confidence in the Chinese economy and market and foster good investment expectations.

Editor: Ben Armour