File Photo: A worker counts Chinese currency renminbi banknotes at a bank in Tancheng County of Linyi City, east China's Shandong Province, April 11, 2013. Photo:Xinhua

 The Chinese yuan climbed near the 7 key mark against the US dollar on Tuesday, reaching its highest level in four months amid surging Chinese stocks and a drop in the US dollar index. Experts expect the rise in the currency will stimulate more buying in yuan assets and push the internationalization of the currency. 

On Tuesday morning the offshore yuan climbed 353 points to 7.0310, the biggest increase in its reference rate against dollar since April 14. The onshore yuan rose to 7.03 against the dollar on Monday, hitting a peak at 7.0288. Over the first half of this year the yuan dropped 1.24 percent against the US dollar. 

Liu Xuezhi, a macroeconomics expert at the Bank of Communications, told the Global Times that the yuan has received a short-term boost from the capital market, which witnessed an almost unprecedented rally on Monday, gaining more than $460 billion.

"China's stock market is attracting a considerable amount of foreign capital given the extremely high valuation of the US stock market at the moment. That capital needs to be converted into yuan before trading, driving up demand in the offshore market," Liu said. 

The yuan's rise has also been influenced up by a falling US dollar index, still under pressure from the spreading coronavirus and an underperforming economy, according to Liu. 

The yuan's rise against the dollar will further encourage the global buying of yuan assets and push for the internationalization of the currency. Liu said investors are becoming increasingly hopeful that yuan assets will be a safe haven from global headwinds amid the coronavirus pandemic, with other major currencies facing depreciation pressure. 

China has maintained a robust monetary policy with a positive interest rate. The country has also further opened up its financial market with its latest negative list introduced by top regulators last month, and is ready to usher in more foreign investment. 

In the second half of the year, the yuan is expected to continue strong against the US dollar, climbing to 6.8-7 against the greenback, said Lian Ping, chief economist at Zhixin Investment.

Global Times