HONG KONG, Sept 1 (Reuters) - The yuan finished onshore trading at its strongest level in nearly 16 months on Tuesday riding on improving domestic data and a widening interest rate gap favouring the Chinese currency.
The onshore yuan ended the domestic trading session at 6.8239 per dollar, its strongest close since May 10, 2019. Its offshore counterpart hit a July 2019 high of 6.8236 at around 0830 GMT.
The onshore yuan has gained more than 2% to the dollar this year, compared with a loss of 1.3% in 2019.
The currency has been rallying in recent weeks, largely as China’s economy has continued to build momentum after the coronavirus-induced slump and as the U.S. dollar has been under pressure.
Chinese factory activity expanded at the fastest clip in nearly a decade in August as manufacturers ramped up production to meet rebounding demand, according to a private survey.
The dollar, which lost 0.23% on Tuesday, and a widening gap between Chinese interest rates over those of the United States underpinned the yuan, said traders in Shanghai.
The Federal Reserve has cut its policy rate to near zero, while the People’s Bank of China has been much less aggressive in its loosening.
The recent pledge by China and the United States to stick to their Phase 1 trade agreement also proved supportive for the yuan.
“While there is no specific trigger, momentum has attracted a lot of investors to chase the yuan rally and dollar decline,” said Ken Cheung, chief Asia FX strategist at Mizuho.
Yuan shorts were squeezed as those betting on strength piled in orders on Tuesday, said one of the traders.
However, political risks remain in play ahead of the November U.S. presidential election, said Christy Tan, head of markets strategy, Asia, at National Australia Bank.
“Nothing much has changed fundamentally,” she said.
Reporting by Noah Sin in Hong Kong; Additional reporting by Winni Zhou in Shanghai and Xiao Han in Beijing; Editing by Amy Caren Daniel
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