Yuan hits highest level in over 16 months against dollar — what explains the strong appreciation? – Money Times

The Chinese currency yuan (ou renminbi) reached its highest level in more than 16 months on Wednesday (25), amid a series of stimuli to boost the Chinese economy.

O yuan offshore — which is traded outside the continent, mainly in Hong Kongbut also in London, Singapore and New York — rose to 6.9946 per dollar, the highest level since May 2023.

Now the yuan onshore reached an intraday high of 7.0319 against the dollar, also remaining at its highest levels since last May.

Unlike other strong currencies such as the US dollar, USA and the onedo Japanwhich have a floating exchange rate, China maintains tight control over the value of the yuan on the mainland.

O yuan onshore is allowed to trade within a limited range of 2% above or below the average rate of the day.

The yuan is already traded outside the mainland (offshore) has less rigid control and operates more volatile supply and demand dynamics in the market.

Why did the yuan rise so much?

The Chinese currency has gained strength with a series of measures to boost economic activity and stabilize the real estate market — which has been in crisis for some years.

Yesterday (24), the Central Bank of China The Central Bank of China (PBoC) announced the biggest stimulus package since the pandemic, including rate cuts, easing mortgage requirements and new financing for stock purchases.

This Wednesday (24), the Chinese Central Bank announced a new reduction in the one-year medium-term lending instrument (MLF) rate for some financial institutions from 2.30% to 2.00%.

Unlike most central banks, especially the US Federal Reserve (Fed), which set a key interest rate, the PBoC uses a range of rates to manage monetary policy.

And what does reality have to do with this?

The announcement of the stimulus led to an improvement in global perception about consumption in China, the largest importer of raw materials on the planet, boosting assets in several markets, including shares and currencies of countries with deep commercial relations with the Asian giant.

Emerging countries and commodity exporters, such as Brazil, were positively impacted by the increase in commodity prices, such as oil and iron ore.

Yesterday (24), for example, the dollar in sight (USDBRL) ended the session down 1.31%, at R$5.4628.

Furthermore, the advance of iron ore boosted the shares of companies in the mining and steel sector.

The roles of CSN (CSNA3) closed Tuesday's session (24) with an advance of almost 10%. Vale (ELECTION 3) rose 4.88% to R$60.34. The mining company recovered more than R$13 billion in market value in a single session.

With the boost, the Ibovespa (IBOV) rose 1.22% to 132,155.76 points.

*With information from CNBC and Reuters