Photo: iStock / Getty
Photo: iStock / Getty

As the yuan soars against the US dollar, remittance demand might help explain the increase in the currency to a 14-month high, reported on Wednesday.

The increase in the yuan to the 6.5 mark occurred in the last two months, and an analyst interviewed by Yicai predicts that there is further room for the yuan to strengthen. The yuan hovered around the 6.7 mark in the first half of this year, and began to increase after China adopted “counter cyclical factors” in the exchange rate model against the greenback in late May.

Chen Jianheng, an analyst at China International Capital Corp, said the rise of the yuan can be divided into three stages:

“The first was in the first five months this year when the yuan to US dollar was relatively stable. It increased slightly following the central bank’s policy in May. In August to date, the yuan broke the 6.75 and the 6.7 mark, which changed the market’s mentality.”

Chen also said that the push past the 6.55 mark is due to the remittance demand. When the yuan was devalued in the past, a lot of corporations were unable to remit out the money in due time, but there was always demand for the yuan, he said in the report. With the increase in the yuan, a lot of corporations are taking advantage instead of storing the capital offshore, he said.

Chen, as with some other analysts interviewed by Yicai, also said that it is possible for the Yuan to break past the 6.5 mark, as the last two years of being “devalued” has created a lot of remittance demand.