China’s currency hit its strongest level against the dollar in three years, posing a challenge for Beijing as it seeks to balance demand for the country’s exports with surging commodity prices.

The onshore-traded renminbi gained 0.2 per cent to reach Rmb6.4052 per greenback on Tuesday, its highest point since June 2018. Meanwhile, the country’s CSI 300 of Shanghai- and Shenzhen-listed shares enjoyed its best day since July, rising 3.2 per cent.

The renminbi has gained more than 10 per cent over the past year, buoyed by China’s economic rebound from the coronavirus pandemic and foreign capital flows into the country.

But the currency’s rise is a quandary for policymakers in China as they grapple with the impact of rising commodity prices, the risk of asset bubbles and signs that growth may be losing steam. On a quarter-on-quarter basis gross domestic product expanded just 0.6 per cent in the first three months, well below expectations.

“The [People’s Bank of China] is aware of the renminbi appreciation risk given China’s [slowing] growth momentum in the first quarter,” said Ken Cheung, chief Asia FX strategist at Mizuho Bank. He added that capital inflows could increase asset price inflation and “invalidate” the central bank’s attempts to stabilise leverage.

Over recent days, the PBoC has sent out mixed messages on the country’s currency. In an editorial on Friday that was subsequently deleted, one of its officials said the central bank should let the renminbi rise to combat higher commodity prices.

Liu Guoqiang, PBoC vice-governor, followed that up by saying he expected the exchange rate to be “stable” and driven by supply and demand, as well as international market conditions, according to comments posted to the bank’s website on Sunday.

Beijing has become concerned over rising commodity prices, which in April drove growth in China’s factory gate prices to their highest in three years, raising the prospect of higher consumer price inflation.

The jump in the CSI 300 on Tuesday, which was led by strong gains for consumer staples and financial stocks, took the index to its highest level since March.

The commentary on the renminbi has also followed a new government crackdown on cryptocurrencies, which fuelled extreme volatility in their trading last week.

After hitting a record earlier in May, iron ore prices slid on Monday after Beijing warned of “excessive speculation” and said it would clamp down on commodities hoarding and monopolies. The country’s state council, chaired by Premier Li Keqiang, said last week that measures should be taken to avoid producer prices feeding through into consumer prices.

A stronger Chinese currency would make it cheaper for the country’s industrial producers to buy raw materials but typically hurts its exporters. The country’s GDP growth returned to pre-pandemic rates in the fourth quarter, buoyed by strong industrial production and exports, though domestic consumption has lagged the wider recovery.

Policymakers have been on high alert to the risk of asset bubbles after the relaxation of main lending rates last year. Guo Shuqing, the country’s top banking regulator, earlier this year warned of bubble risks in international markets and China’s property sector.

Interest rates have not been increased but signs have emerged of a gradual tightening of credit conditions in the country.

Additional reporting by Wang Xueqiao.