The Chinese yuan is expected to consolidate and trade between 6.50 and 6.60 for now and is expected to advance further in the medium term on account of the EUR’s potential strength and possible portfolio inflows to mainland China.

The yuan’s resilience could spark foreign investor interest. Amid further opening up of China’s financial markets, foreign investors are expected to raise their holdings in China’s yuan-denominated financial assets in the years ahead. After MSCI announced on June 22 to include 222 China 'A' large-cap shares into the MSCI EM Index, China’s bonds will be included in global benchmark indices as well in our opinion, Scotiabank reported.

Bloomberg reported Monday that China’s central bank is drafting a package of reforms which would grant foreign investors greater access to the nation’s financial services industry, citing people familiar with the matter. Overseas investors added to their holdings in mainland Chinese equities and bonds by CNY219 billion and CNY39billion respectively in the January-June period this year. However, foreign ownership of local equities and bonds is still less than 2 percent each, according to data from China’s regulators and local stock exchanges.

Guan Tao, a former senior official with the SAFE, said that the yuan exchange rate will likely achieve the goal of a clean float within three years and possibly sooner. He also expects the central bank to ease measures curbing capital outflows and optimize the yuan fixing formation mechanism, according to MNI.

"We think market sentiment has turned to modestly positive for the yuan with concern over the yuan’s depreciation fading and dissipating. We also expect the central bank to keep pursuing a “neither too tight nor too loose” stance of monetary policy ahead of the quarter-end and the National Day holiday," the report said.

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