Yuan holds firm near 2023 highs despite dollar strength
HONG KONG: China’s yuan held near its strongest level in three years and nine months on Tuesday, shrugging off a strong dollar as central bank guidance kept the currency steady. The yuan was largely steady at 6.6972 per dollar, hovering near the strongest level since January 16, 2023. The offshore yuan traded at 6.698 yuan per dollar, down about 0.05% in Asian trade. The dollar index stood near…
China's yuan demonstrated resilience near its highest levels in three years and nine months on Tuesday, defying a robust US dollar. Central bank guidance played a crucial role in stabilizing the currency. At 6.6972 per dollar, the yuan was largely steady and hovered close to the strongest level since January 16, 2023. The offshore yuan traded at 6.698 yuan per dollar, marking a slight decline of about 0.05% in Asian trade.
Meanwhile, the dollar index approached an 18-month peak, propelled by renewed concerns over energy infrastructure attacks in the Middle East and Ukraine. Elevated US Treasury yields also bolstered the dollar. "Dollar strength mainly translates into a slower yuan appreciation pace rather than a trend depreciation," analysts at Huatai Securities noted.
Corporate FX settlement and a consistent midpoint fixing served as buffers, preventing a sharper decline. The yuan is expected to remain within a narrow range in the near term as markets await clearer guidance on the Federal Reserve's rate policy ahead of the US midterm elections, according to the analysts. Prior to the market opening, the People's Bank of China set the midpoint rate at 6.7298 per dollar, which was its strongest fixing since February 2, 2023, a 317 pip decrease from a Reuters estimate.
The central bank has consistently set its daily official yuan guidance below market expectations for nearly a year, a strategy interpreted by traders and analysts as an effort to curb the currency's appreciation. Chinese officials defended the exchange-rate policy against foreign criticism last week, stating that China has never pursued competitive depreciation and that the market plays a decisive role in exchange-rate formation.
Analysts at China Securities forecast a modest further appreciation of the yuan for the remainder of the year, with USD/CNY trading around 6.6–6.7 by year-end. They believe a rapid, one-way rally in the short term is unlikely due to the trade surplus and potential FX settlement demand supporting the renminbi.
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