"Just looking at a chart of the pair might lead one to think that the yuan is on a tear and that something new is going on in China," analysts at Credit Suisse said in a note this week. "In contrast, we view the fall in the dollar/yuan pair as all about broad dollar weakness."
The People's Bank of China fixed the yuan mid-point at 6.7415 to the dollar on Friday, compared with Thursday's close of 6.7580. That marked the lowest fixing — and the yuan's strongest — since October, according to Reuters data.
In the spot onshore market, the dollar was fetching 6.7616 yuan at 10:06 a.m. HK/SIN, off the pair's earlier low of 6.7549 yuan.
China's central bank does not allow the currency to move more than 2 percent from its daily fixing in onshore trade. While policymakers cannot closely control offshore trade of the currency, it usually remains relatively close to its onshore counterpart.
The analysts noted that the resurgent renminbi was coming even as authorities had begun to lower market interest rates, indicating a policy shift away from supporting the yuan.
Credit Suisse said there were now downside risks to its three-month and 12-month forecasts for the dollar/yuan at 6.75 and 6.94 respectively.
The stronger yuan comes in the wake of Trump's campaign claims that China was deliberately weakening its currency, even as analysts noted that policy makers on the mainland actually appeared to be supporting it as the greenback surged.
Trump had vowed (and subsequently reneged) on a promise to label China a currency manipulator for the purposes of a competitive trade advantage on the first day of his presidency, and he threatened to impose a tariff of as much as 45 percent on China's exports to the U.S.
As the yuan has strengthened, the U.S. dollar has taken a hit amid a series of setbacks for the Trump administration: The Republican health-care bill aimed at replacing Obamacare failed to get enough backing to proceed, and a second effort to simply repeal the law saw difficulty.
Analysts took that as an ominous sign for the Trump administration's entire agenda, including tax reform and infrastructure spending, spurring traders to sell off the greenback.
Singapore-based DBS said the stalled health-care bill suggested "a four-year lame duck presidency," adding in a Wednesday note that, "reform, deregulation and fiscal stimulus that excited markets seven months ago are becoming ever-more distant memories and expectations for GDP growth and Fed action are falling accordingly."
Those issues were exacerbated by a report on Thursday, citing a person familiar with the investigation, that Robert Mueller was examining Trump's businesses as part of the special counsel's probe into allegations the president's campaign colluded with Russia during the election.
Analysts saw that as a sign of further dollar weakness ahead.
"This revelation is huge as just last week President Trump said that expanding the investigation beyond Russia would be out of bounds so with Muller broadening the Inquisition into Trump's business dealings, U.S. political risk could move to whole new level as this foxtrot plays out," Stephen Innes, a senior trader at OANDA, said in a Friday note.
And while the dollar may be a main factor, analysts have noted that the Chinese yuan has some economic drivers of its own.
Patrick Bennett, a foreign-exchange strategist at CIBC, pointed to China's trade report for June as a positive, with both exports and imports rising.
"This was yet another strong result for an economy that conventional wisdom has believed cannot surely sustain the pace of growth and therefore is susceptible to crumble. That has not occurred and we don't see that happening at present or anytime soon," Bennett said in a note on Thursday, forecasting the yuan to "appreciate from present levels against a weaker U.S. dollar."