China's currency is having an even better year than the US dollar. Here's why

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Hong Kong (CNN Business)China is grappling with a slowing economy, yet its currency has rarely been stronger. The yuan is also outperforming the US dollar this year even as the Fed prepares to hike interest rates. So what gives?

The Chinese currency has soared more than 8% in 2021, according to an index that tracks the yuan's performance against 24 other currencies. Based on that gauge — the CFETS RMB Index — it is just 0.26% short of its previous record high set in November 2015.

The yuan has also gained ground on the dollar. The yuan has risen between 2.4% and 2.8% this year against the greenback — depending on whether it trades in China or offshore. Both versions are now at their highest levels against the dollar in three years or more. The offshore rate currently trades at 6.34 yuan per dollar, a level not seen since May 2018.

Headed into December, the yuan's gain this year was "the best in the world," said Marc Chandler, managing director for Bannockburn Global Forex, an Ohio-based capital markets trading firm.

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