Tannet reads from China Daily that two years after China changed its "central parity system" to let the market play a bigger role in exchange rate formation, China's currency stands tall against the US dollar with stabilized market expectations.
Last Friday, the central parity rate of the Chinese yuan strengthened by 128 basis points to 6.6642 against the US dollar, the highest level in more than 10 months.
The adjustment came after a rise of 305 basis points Thursday and a rise of 109 basis points Wednesday, according to China Foreign Exchange Trade System.
While a weaker dollar has been contributing to the climb of the yuan, which has strengthened by nearly 3,000 basis points since the beginning of this year, the advance this week came despite a rebound of the US dollar index, indicating a change in market expectations, said China Securities in a research note.
The US dollar index, a measure of the value of the dollar against a basket of foreign currencies, has dropped nearly 10 percent since the beginning of this year, contributing to a relative rise of the Chinese currency.
But a recent pick-up in the index didn't deter the continuous advance of the yuan this week, indicating a shift in the pattern of the yuan's rise.
Under the market-based, managed floating exchange rate system, the yuan can rise or fall by 2 percent against the US dollar from the central parity rate each trading day.
The market-oriented mechanism has helped the Chinese currency join the elite reserve currency basket of the International Monetary Fund (IMF), or the Special Drawing Right (SDR) basket, a milestone for the yuan's internationalization.
"With stabilized expectations, the yuan-dollar exchange rate will probably realize two-way fluctuations within the year," it said.
The yuan is also supported by economic data, with restructuring providing fresh signs of stabilization for the economy, said analysts. (Source: China Daily)
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