The Chinese Yuan (CNY) continued its steady appreciation, supported by a weaker US Dollar (USD), with USD/CNY falling to 7.0471. Banking sector foreign currency reserves rose further, reflecting efforts to moderate the pace of CNY gains while maintaining a high trade surplus. Analysts expect gradual, controlled appreciation in the months ahead, Commerzbank's FX analyst Volkmar Baur notes.

Chinese Bank FX reserves rise amid currency strength

"According to the Bank for International Settlements (BIS), the CNY appreciated by 0.9% on a trade-weighted basis in November. This development was supported by a sustained appreciation of the CNY against the US dollar, which has continued so far this month. Yesterday, USD/CNY fell to 7.0471, its lowest level this year."

"However, data published yesterday on the balance sheets of the Chinese banking sector indicate that the appreciation could have been even stronger. While foreign currency reserves at the central bank did not increase, they rose again in the banking sector by around RMB 80 billion compared with the previous month, putting them around 24% higher last month than in November last year."

"We expect the CNY to continue to appreciate slightly against the US dollar in the coming months. However, this will not be enough to counteract the high foreign trade surplus. The government will therefore continue its efforts to prevent the CNY from appreciating too quickly. And the interventions are likely to cause foreign currency reserves in the banking sector to rise further."