China's yuan climbed to a 16-month high on Wednesday as the better-than-expected economic data reinforced the market's confidence in the country's recovery from the COVID-19 epidemic.

According to the China Foreign Exchange Trade System, the central parity rate of the renminbi strengthened by 397 basis points to 6.7825 against the US dollar on Wednesday, the largest intraday gain since April 8 and the highest level since May 9,2019.

Traders said that the onshore and offshore renminbi rose by over 3,500 basis points against the US dollar since the end of May.

Gao Shanwen, chief economist with Shenzhen-based Essence Securities, said the bullish trend in renminbi exchange rates will last for a long time. The depreciation of the US dollar and the turnaround in China's exports despite the COVID-19 epidemic are the major triggers for the renminbi's recent gains, he said.

The General Administration of Customs said on Sept 7 that China's foreign trade rose by 6 percent on a yearly basis to 2.88 trillion yuan ($425.96 billion) in August, with exports surging 11.6 percent on a yearly basis.

Han Tan, a market analyst at FXTM, a global foreign exchange broker, said: "China's better macroeconomic indicators have been the driving force behind the renminbi rally."

Data released by the National Bureau of Statistics showed that industrial output in China increased by 5.8 percent on a yearly basis in August, and by 0.8 percentage point on a monthly basis. Retail sales rose by 0.5 percent on a yearly basis in August, the first expansion so far this year.

Global multi-asset index provider FTSE Russell is expected to announce its annual review results for WGBI－the widely tracked government bond index on Sept 24. Analysts from UBS Wealth Management expect China to be included in the index this year, which will attract possible capital inflows of between $125 billion and $150 billion into China in the next 18 to 24 months.

This will be conducive to China's economic recovery and further bolster renminbi's strong credentials, they said, adding that the yuan-US dollar exchange may touch 6.7 by September next year.

HSBC has also adjusted its forecast for the renminbi exchange rate given the currency's bullish momentum and the country's stronger economic outlook. The bank said that the exchange rate will reach 6.7 by the end of this year, while its earlier forecast was 6.95.

Sun Wu, chief financial market analyst for global markets research at MUFG Bank China, expects the exchange rate to be around 6.80 and 6.85 in the following months.

The market in general holds a positive outlook on the effectiveness of China's recent policies, especially those regarding technology innovation. An increasing number of Chinese brands will thus gradually move up the value chain to churn out products of better quality and higher added value. This will provide more impetus for a further rally of the Chinese currency, said Sun.