Global Market: Chinese yuan hits four-year high, heads for fourth straight monthly gain

The onshore yuan opened at 6.6600 per dollar and was trading at 6.6590 as of 0240 GMT, its strongest level since June 6, 2022.

The onshore yuan opened at 6.6600 per dollar and was trading at 6.6590 as of 0240 GMT, its strongest level since June 6, 2022. The currency was 22 pips firmer than its previous late-session close and has appreciated around 5% against the dollar so far this year.

According to Reuters, exporters have continued converting their dollar holdings into yuan and increasing currency hedging as the Chinese currency strengthens. A firmer yuan reduces the domestic-currency value of exporters' dollar earnings, encouraging them to sell dollars and convert the proceeds into local currency, adding further upward pressure on the exchange rate.

The People's Bank of China (PBOC), meanwhile, set its daily midpoint rate at 6.7138 per dollar before the market opened, its strongest fixing since February 2023. The fixing was 590 pips weaker than a Reuters estimate. China's onshore yuan is permitted to trade within a 2% range on either side of the daily midpoint.

The steady strengthening of the daily fixing suggests that Chinese policymakers have little inclination to reverse the yuan's appreciation trend, although the pace of gains could moderate, OCBC analysts said in a note, according to Reuters.

The dollar's weakness also provided support to the Chinese currency. The greenback tracked lower US Treasury yields as another wave of selling in artificial intelligence-related stocks triggered a flight to safety in global markets. The dollar index, which measures the US currency against a basket of six major currencies, fell 0.147% to 101.73.

The onshore yuan has gained around 0.2% against the dollar so far this week and 0.7% during October. Its offshore counterpart was trading at 6.6557 per dollar, up approximately 0.02% in Asian trading.

The yuan's broader strength was also reflected in its trade-weighted valuation. Based on Friday's midpoint fixing, the yuan CFETS basket index, which measures the currency against a basket of its major trading partners, climbed to 103.77, its highest level since July 15, 2022, according to Reuters calculations based on official data.

BOJ decision in focus

Investors were also assessing the Bank of Japan's latest monetary policy decision for potential implications for the dollar and Asian currencies.

The BOJ kept interest rates unchanged on Friday but raised its inflation forecast and reiterated its readiness to continue increasing borrowing costs to contain mounting inflation risks.

The central bank's stance could influence expectations for the future direction of Japanese monetary policy and the yen, adding another factor for currency traders to monitor as the dollar faces renewed selling pressure.

Despite the possibility of near-term support for the dollar from resilient US economic growth and persistent inflation, analysts believe these factors need not derail the yuan's appreciation trajectory.