For the first time in its history records, the offshore Renminbi advanced to its biggest-ever two day surge and sent the US dollar tumbling on Thursday on robust economic data and tight liquidity in offshore markets exercised by the Chinese government.
The offshore renminbi was at record low of Rmb6.9895 on Tuesday session and was expected to continue losing its strength in the following weeks but markets were shocked to see the currency bucked the weak trend as it rallied 2.6% against the US dollar, gaining 93.9 cents to close at Rmb6.7853, its highest peak since early November last year.
The surprising jump by the Chinese currency was prompted by the robust economic data of China which showed an expansion of its manufacturing activity last month and an impressive service sector data.
Another driver of the Thursday-surge by the offshore renminbi was the effort of the government to burn through its foreign exchange reserves to stabilize the pace of the currency’s decline and as the Chinese citizens’ annual forex limit was reset, there is an anticipation that it would increase this month.
This big move by the renminbi helped emerging markets, including the Brazilian real and the South African rand to post large gains and pushed the US dollar to its three week low against the Japanese yen at 115.6.
But an expert form RBS said that the underlying weaker trend has yet to change and the surge on offshore Renminbi will make it more vulnerable.