Chinese currency has risen significantly over the past few days after the government announced a further easing of social distancing measures and travel curbs. However, the rally may be at its initial stages as upside surprises in economic data will likely emerge with a lag in the coming months.

Renminbi could strengthen even further against the US dollar as investors will likely be slow to digest the effects of the reopening reflecting cautious CCP’s pivot in the Covid-handling strategy that will likely be done in stages. China’s economic data, which includes industrial production and retail sales due next week should be the first batch of data to reflect an initial rebound in activities. There is a growing risk that depressed Chinese news will consistently turn into positive surprises in the near-term. That should revive the demand for Renminbi and push the currency even higher.

The Chinese yuan had previously weakened to 7.3 against the US dollar in early November, its worst reading since January 2008. However, the currency quickly recovered to 6.96 within about a month, after the Chinese government promised to ease coronavirus measures.