China's yuan advanced to its highest value against the US dollar in nearly 19 years yesterday, pushed up by quantitative easing worldwide and optimistic signs for China's economy.

The currency hit an intraday high of 6.2371 per US dollar, the highest rate since 1994, when the nation launched a new Chinese currency-trading system, before it closed at 6.2438 against the dollar.

The People's Bank of China set the central parity rate at 6.2992 against the dollar yesterday, marking the strongest trading midpoint since May 11, compared with last Friday's 6.3010.

The yuan, rebounding on its longest streak since 2008, has gained 2 percent since the end of July. Analysts attributed the appreciation to the cheaper dollar after a worldwide relaxation in monetary policy as well as the increasing inflow of speculative funds.

The yuan is not the only currency appreciating as excessive liquidity resulting from quantitative easing policies in the US and Europe has weakened the US dollar, said Zuo Xiaolei, chief economist of China Galaxy Securities. Intensified speculative investments amid increasing inflow of foreign capital also contributed, Zuo added.

China's foreign exchange purchases rose 130.68 billion yuan (US$20.7 billion) in September after falling for two months, the central bank said on October 19, indicating that more overseas funds flowed into the domestic Chinese market.

Emerging signs that point to stabilization in China's economy have been attracting inward investments, said Zhao Qingming, a financial expert with the University of International Business and Economics.

Profits at China's major industrial companies expanded 7.8 percent from a year earlier to 464.3 billion yuan in September, the National Bureau of Statistics said over the weekend. The figure was a rebound from a 6.2 percent drop in August and snapped a five-month losing streak, following figures showing recovery in the country's retail sales, manufacturing and exports.

However, a recent report from the State Administration of Foreign Exchange showed that the country's capital and financial account remained in a deficit of US$85.4 billion in the January-September period, sharply down from a surplus of US$234.1 billion in the same period last year, fueling concern about capital flight.

But the administration said the deficit indicates that foreign exchange assets are gradually shifting from the central bank to domestic institutions and individuals rather than a huge capital outflow. The Standard Chartered Bank shared the view of the administration, saying that "limited foreign exchange outflows are surely to be welcomed after continuous inflows from 2005 to 2011."

The bank expects "relatively modest gains" in yuan against the US dollar over 2013, with yuan forecast at around 6.19 per dollar at the end of 2013.

Go to Forum >>0 Comment(s)