Chinese yuan hits highest level against dollar in 16 months due to stimulus policies, US Fed rate cut: experts

The offshore Chinese currency yuan briefly rallied past the 7.0 per dollar milestone for the first time in 16 months on Wednesday, as investors digested China's stimulus measures to stabilize growth and the recent U.S. Fed rate cut kept the dollar on the back-foot.

China's central bank governor Pan Gongsheng Tuesday said that the country will cut the reserve requirement ratio (RRR) by 0.5 percentage point in the near future, providing about 1 trillion yuan (about 142.30 billion U.S. dollars) in long-term liquidity to the financial market.

Depending on the liquidity situation in the market, the RRR may be further lowered by 0.25 to 0.5 percentage point within the year, Pan told a press conference in Beijing.

Meanwhile, the U.S. Federal Reserve announced last week that it will slash the target range for the federal funds rate by 50 basis points, marking the first rate cut since March 2020 and signaling the start of a monetary policy easing cycle.

"On the one hand, as U.S. Federal Reserve kicked off a monetary policy easing cycle, the interest rate difference between the Chinese and U.S. currencies narrowed. On the other, the resilience of China's foreign trade and its high trade surplus have helped stabilize the Chinese yuan exchange rate. The recent introduction of a host of policies to stabilize growth has also significantly boosted market confidence," said Wen Bin, chief economist at the Beijing-based China Minsheng Bank.

Recently, the supply and demand of the foreign exchange market have become more balanced. Data released by the State Administration of Foreign Exchange showed that in August, the cross-border income and expenditure volume of enterprises, individuals and other non-bank sectors has changed from a deficit previously to a surplus of 15.3 billion U.S. dollars.

"The appeal of Chinese yuan assets has increased dramatically, attracting the inflow of overseas capital, and further promoting steady performance and gradual improvement of the Chinese yuan exchange rate. We have every reason to believe that with the continued support of policies and the fundamentals of the economy, the Chinese yuan exchange rate can stay in a balanced range and perform well," said Tian Lihui, director of the Institute of Finance and Development at the Nankai University in north China's Tianjin Municipality.

Horgos Port, a major border junction linking China to Central Asia, handled over 38 million tons of goods in the first ten months of this year, marking a 10 percent year-on-year increase, according to the latest customs data.

Located on the border of northwest China's Xinjiang Uygur Autonomous Region, the port has played a pivotal role in the growing development of trade routes between China and Europe.

Data showed that from January to October this year, the main imported goods through the Horgos Port included electromechanical products, agricultural products, food items, and metal ores and sands. Exports mainly included new energy vehicles, electromechanical products, high-tech goods, textiles, and related products.