The Chinese yuan sprang out of a seeming slumber and rallied to more than five-month peaks Monday, barreling past the 6.9 per US dollar mark for the first time since August.
The yuan notched this strong advance in offshore trading after the united States delisted China from its designation as a currency manipulator.
The delisting was made ahead of the much hyped signing Wednesday in Washington of the long-drawn Phase One trade accord between China and the US.
The yuan's exchange rate has improved as well, amid rising trade tensions, due to increased confidence that China has contained an economic slowdown. The yuan early Tuesday clung for a fourth day of ascent against the currencies of a group of trading partners.
The move helped boost equity confidence, with the CSI 300 Index coming to a close at its highest level in nearly two years. In Hong Kong shares of Chinese companies have likewise soared.
Some are now predicting that the Chinese currency will touch 6.8 per dollar within three months - a level unseen since last May.
"One way to show goodwill is to have a stronger currency," said Mitul Kotecha, a senior emerging-market strategist at Toronto-Dominion Bank in Singapore.
Indications of a gradual, rather than rapid, slowing in China's economy and a limited decline in its financial markets' rates will be good for the currency, Kotecha explained.
China's currency weakened past key 7 per dollar mark. Last year's yuan's slide reignited one of China's favorite criticisms of Trump: that Beijing is weakening its currency to help exporters.
Now investor optimism about economy and trade has for more than two weeks kept the currency on the strong side of the 7 levels. Multiple indexes of expected volatility are hovering close to there lowest in about five months, signaling a hedge against swings among traders.
Since the nadir (lowest point) in September, the yuan has appreciated more than 4 percent. With Chinese Vice Premier Liu He expected to seal the partial Chinese-American trade deal in Washington, the Trump administration said Monday the nation made "enforceable commitments" not to devalue the yuan and agreed to publish information on exchange rates.
Some market observers, however, advise to be very wary of the yuan's behavior. Cliff Tan, Head of Eastern Asia Global Markets Research at MUFG Bank Ltd., says fiscal stimulus expectations may run too high.
Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd., noted that the strength of the yuan could be temporary, as it is partially related to corporate spending and conversion of exporters before the Lunar New Year.
