China’s strengthening yuan is now smashing every key level in sight

Bloomberg

With a trade deal nearly signed and China’s economy on steadier footing, the path for China’s yuan to strengthen is now wide open.
The currency rose to a five-month high on Monday, punching past 6.9 per dollar for the first time since August. It also strengthened for a fourth session versus a basket of trading partners’ currencies. The move helped bolster sentiment in stocks, with the CSI 300 Index closing at its highest level in almost two years. Shares of Chinese companies also surged in Hong Kong.
While analysts say the exchange rate is being driven by improving market sentiment as China’s economy steadies and trade tensions ease, the recent bout of strength comes at a pivotal time for US-China negotiations. Chinese Vice Premier Liu He is expected to sign the long-awaited phase one agreement in Washington on Wednesday.
Some now predict the currency will touch 6.8 per dollar within three months — a level not seen since May last year.
“Having a stronger currency is one way to show good will,” said Mitul Kotecha, a senior emerging-markets strategist at Toronto-Dominion Bank in Singapore. “Signs of a gradual, as opposed to rapid, slowdown in China’s economy and limited decline in China rates will provide support to the currency.”
China’s currency weakened past the key 7 per dollar level for the first time in a decade in August, when tensions between the two nations escalated. The yuan’s slide last year reignited one of Trump’s favorite criticisms of China: that Beijing weakens its currency to aid exporters.
Now, investor optimism over the economy and trade has kept the currency on the strong side of 7 for more than two weeks. With technical indicators flashing bullish signals, multiple measures of expected volatility are hovering near their lowest in about five months, signalling a reluctance among traders to hedge against swings. The yuan has gained more than 4% since September’s nadir.