The yuan strengthened to 6.2920 against the U.S. dollar on Monday, setting a half-year high.
The central parity rate grew by 92 basis points on Monday from 6.3012 on the previous trading day, according to the China Foreign Exchange Trading System.
The figure was the strongest since May 9. The central parity rate of the yuan was at 6.2865 on May 9, and even lower, at 6.2804, on May 8.
Monday marked the fifth day running for the central parity rate to rise.
The spot prices of the yuan have been rising to the daily trade limits for ten days. In China’s foreign exchange spot market, the yuan is allowed to rise or fall by 1 percent from the central parity rate each trading day.
The sharp appreciation of the yuan came after monthly trade figures were released on Saturday.
The October trade surplus widened to 31.99 billion U.S. dollars from 27.67 billion U.S. dollars in September and 26.66 billion U.S. dollars in August.
Trade figures have always been key in observing the changes in exchange rates, said Zhao Qingming, an economist at Beijing-based University of International Business and Economics.
The trade surplus is expected to expand to about 200 billion U.S. dollars this year, thus pushing up the yuan price, Zhao said.
International capital flows into Hong Kong have strengthened anticipations for the yuan’s appreciation, but unlike Hong Kong’s highly open market, the mainland has limits on incoming capital and, therefore, little hot money has been spotted on the mainland, Zhao said.
The spot prices of the yuan have experienced ups and downs in the past days to the daily limit, showing that the central bank is letting the market go and the market is not fully mature yet, said Ding Zhijie, an economics professor at the University of International Business and Economics.
The spot price of the yuan has been stronger than the central parity price since September, indicating robust incoming investment. However, the non-deliverable forwards (NDF) of the yuan, a key indicator of the overseas market’s expectations for the currency, show expectations of depreciation in the long term.
The central parity rate of the yuan against the U.S. dollar is based on a weighted average of prices before the opening of the market each business day.