Real economy will determine currency's value

Markets have become even more divided over the trend of the yuan after it registered major gains early this month in both onshore and offshore trading, with some analysts saying the Chinese currency may rise moderately against the dollar this year. Analysts have also argued that given China's sound economic fundamentals, even if the yuan were to further weaken against the US dollar, the depreciation will not be sharp.

The yuan registered the biggest gain in a year in overnight trading in the offshore market on Jan 5 thanks to the weakening of the dollar and strengthened scrutiny of foreign exchange purchase by China's monetary regulators. The yuan broke the 6.87 mark against the greenback in intraday trading to hit 6.8648 in the offshore market, up by 900 basis points compared with the previous day's lowest level. It also rose strongly in onshore trading later on.

The yuan surged at a time when the markets had expected it to continue weakening after it fell nearly 7 percent in 2016. Analysts said the People's Bank of China, the central bank, sent a series of signals in December hinting that the authorities will strengthen regulation of capital outflow to shore up the yuan, which, coupled with the weakening of the dollar index, is behind the yuan's gains.