Yuan hits 1-year high on upbeat stocks, trade deal hopes

SHANGHAI: The yuan firmed to a one-year high against the dollar on Tuesday, buoyed by stronger central bank guidance and upbeat equity sentiment, as investors looked ahead to a high-stakes meeting between Chinese and US leaders this week.

The onshore yuan strengthened past the 7.1 per dollar mark to 7.0995 in early trade, its strongest level since November 4, 2024.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.0856 per dollar, its strongest since October 15, 2024, and 173 pips firmer than a Reuters estimate.

The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The spot yuan opened at 7.1070 per dollar and was last trading at 7.1024 as of 0244 GMT, 43 pips firmer than the previous late session close and 0.24% weaker than the midpoint.

The recent strengthening of the yuan midpoint was largely driven by an overnight decline in the US dollar, said analysts at Pingan Securities in a note.

The analysts said the yuan still has considerable room to appreciate, but the pace of any further gains will hinge on how quickly the US-China interest rate differential narrows.

Also helping the yuan is strong equity sentiment, with the benchmark Shanghai Composite Index breaching the psychologically important 4,000-mark for the first time since August 2015.

“The key for Asia FX markets is whether the current optimism over Chinese assets can continue and thereby provide a supportive environment for the yuan,” said MUFG analysts in a note.

The analysts expect the onshore yuan to gradually strengthen, forecasting a move toward 7.05 per dollar by the first quarter of 2026 and 7.00 by the second quarter.

Top Chinese and US economic officials have agreed on the framework of a trade deal, paving the way for Presidents Donald Trump and Xi Jinping to review the terms when they meet Thursday on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Gyeongju, South Korea.

The offshore yuan traded at 7.1029 yuan per dollar, up about 0.07% in Asian trade.

The dollar index, which measures the US dollar against six major peers, was 0.065% lower at 98.7.