The Chinese yuan traded higher against its US counterpart on Tuesday, buoyed by strengthening corporate demand. Global financial markets were monitoring Federal Reserve Chair Jerome Powell’s testimony in front of the US Senate Banking Committee to determine what the central bank’s actions will be moving forward.

During the course of the pandemic, the yuan has been one of the most reliable Asian currencies, with some market analysts describing it as a safe-haven asset.

Could this change in 2022?

Market experts note that the yuan will unlikely weaken in the short term because the long-term traders are finding opportunities. Moreover, strategists say that it can be challenging to find a different market consensus based on the effects of the Fed’s incoming rate hikes.

This is totally different from the People’s Bank of China (PBoC) that has begun loosening monetary policy again in response to the economic slowdown amid outbreaks of COVID-19.

Some financial analysts suggest that the next move for the PBoC is to cut the one-year medium-term lending facility (MLF) rate.

“The 1Y MLF rate is currently too high to be a medium-term pivot for banks’ asset pricing because there have been structural changes in the costs of other liabilities,” analysts at AZN said in a note.

“Furthermore, China’s policy stance has shifted to growth stabilisation. The optimisation of the policy rate system will help to transmit liquidity that has accumulated in the banking system to the real economy.”

Meanwhile, corporate demand for the yuan has been robust, which is normal for this time of the year because of the long Lunar New Year holiday.

On the data front, the National Bureau of Labor Statistics (NBS) will release its consumer and producer price inflation data on Wednesday. Beijing will also publish trade, automobile sales, and housing data this week.

The USD/CNY currency pair dipped 0.03% to 6.3741, from an opening of 6.3762, at 15:34 GMT on Wednesday. The EUR/CNY advanced 0.28% to 7.2432, from an opening of 7.2220.