(Bloomberg) -- Chinese companies rushed to shift money back into their home market last month as US rate cuts reduced returns on dollar assets, leading to the largest monthly capital inflow in about two years.

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Last month, domestic firms sold the most foreign exchange to banks since December 2021, a sharp reversal from their large purchases of US dollars and other currencies over the past year, official data released Tuesday show. The figures also revealed a rise in foreign currency settlement for goods trade, signaling growing confidence in the yuan’s stability, and record levels of FX sales related to securities investments.

This shift followed the slide in the greenback in recent months, a move than has since reversed amid rising questions about how fast the Federal Reserve will cut rates. The offshore yuan gained additional momentum in late September, briefly surpassing past the 7-per-dollar mark, after the People’s Bank of China announced a series of mesures to support the economy and boost the stock market.

“The data confirmed the mitigation of RMB depreciation risk following the Fed’s pivot, and the RMB rally was supported by actual FX settlement flow,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank. He said that whether the trend continues will depend on the pace of Fed rate cuts, the US election and the extent of China’s stimulus. He said that whether the trend continues will depend on the pace of Fed rate cuts, the US elections and the extent of China’s stimulus.

That said, the yuan has weakened 1.8% this month versus the greenback in offshore trading, as investors mull prospects of slower Fed rate cuts and uncertainties in the US election. The sharp rally in Chinese stocks also lost some steam in recent weeks amid disappointments over a lack of follow-up policies.

At a briefing Tuesday, China’s FX regulator official highlighted signs of improving sentiment, such as a rising foreign currency settlement ratio and increasing foreign positions in local bonds. Expectations and trading in the forex market remain orderly and rational, said Li Hongyan, deputy chief at the State Administration of Foreign Exchange.

“The key is whether its going to last,” said Eddie Cheung, senior emerging markets strategist at Credit Agricole CIB in Hong Kong. “I think the numbers for October will be strong too, but that’ll still only be two months.”

--With assistance from Ran Li and Chongjing Li.

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