Yuan hits four-year high as PBOC guides pace

Currency trading slip and Asian banknotes on desk as yuan CNY hits four-year high versus dollar USD in forex trade

Key Points

01Yuan reaches a four-year high near 6.67 per dollar in onshore trade
02PBOC sets strongest yuan midpoint since February 2023 at 6.7162
03Onshore yuan poised for an eighth straight session of gains
04Investors eye Fed, BoJ, ECB meetings and China’s fifth plenum

Yuan extends rally to four-year high

China’s yuan climbed to a fresh four-year high against the US dollar on Monday, extending what could become its longest winning streak since May. In the onshore market, the currency briefly strengthened to 6.6682 per dollar, its firmest level since June 2022, before last trading around 6.6691 in early Asian hours. If the gains are maintained through the late-night close, the onshore spot rate would log an eighth consecutive session of appreciation.

The offshore yuan moved in tandem, last trading near 6.6688 per dollar and modestly higher in Asian trade. The rally has been supported by a softer US dollar, with lower US Treasury yields and weaker oil prices weighing on the greenback. The advance marks a notable shift after a period in which the Chinese currency had been viewed as undervalued by some market participants.

Central bank sets strongest fix since early 2023

Ahead of Monday’s trading, the People’s Bank of China (PBOC) set the dollar-yuan midpoint at 6.7162, its strongest fixing since February 2, 2023. The central parity rate serves as the anchor for the onshore market, where spot trading is permitted within a band of up to 2% on either side each day. At Monday’s level, the band implies an official trading range of roughly 6.58 to 6.85 yuan per dollar for the session.

The 6.7162 midpoint was 471 pips weaker than a Reuters estimate of 6.6691.

Analysts at Barclays said the PBOC is resisting a faster pace of appreciation by using weaker-than-market-expected fixings. By doing so, policymakers can temper one-way expectations, keep volatility in check, and guide appreciation in smaller steps. Some analysts maintain a constructive view on the currency’s medium-term prospects, arguing that a gradual but sustained appreciation process is underway from a previously undervalued starting point.

Global policy meetings and China’s fifth plenum in focus

The latest yuan gains come in a week dominated by major global and domestic policy events. Investors are watching upcoming meetings of the US Federal Reserve, the Bank of Japan, and the European Central Bank, where interest rates are widely expected to be left unchanged while policymakers maintain a cautious stance. The trajectory of the US dollar around these meetings remains an important driver for the yuan.

Domestically, attention is turning to China’s fifth plenum, which investors are monitoring for fresh policy signals. Currency appreciation alone is seen as insufficient to address broader economic challenges, with some analysts emphasizing the need for measures that also support domestic demand. For now, the combination of a softer dollar, controlled appreciation, and looming policy decisions is setting the tone for yuan trading at multi-year highs.

Key Takeaways

01The yuan’s rise to a four-year high is being allowed but moderated, as the PBOC pairs a stronger fix with a weaker-than-expected level versus market estimates.
02By anchoring the currency with a 6.7162 midpoint and a 2% band, policymakers retain tight control over the trading range even as spot pushes toward the strong end.
03Upcoming global central bank meetings and China’s fifth plenum could be important catalysts for the next phase of yuan moves, given the current emphasis on managed, gradual appreciation.

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