China’s yuan hits fresh 14-month high on dollar weakness

SHANGHAI: China’s yuan climbed on Monday to a fresh 14-month high against the dollar, as broad weakness in the US currency overcame concerns over an economic slowdown in the Asian giant and a softer-than-expected official guidance fix.

Higher seasonal corporate demand also lent support to the yuan as exporters usually convert a larger share of foreign exchange receipts for various payments and administrative requirements due towards the end of the year.

In the spot market, the onshore yuan rose 0.05% to 7.0508 per dollar by 0323 GMT, its strongest since October 8, 2024. Its offshore counterpart fetched 7.0487 to the dollar, up about 0.08% in Asian trade.

“We continue to see USD/CNY edging to 7.05 by year-end, but do not expect a sustained move beyond this level,” Barclays analysts said in a note.

“Given that exports remain a key growth driver for the economy, we do not expect the People’s Bank of China (PBOC) to enable a sharp appreciation in the currency, despite positive Q4 tailwinds from exporters’ USD selling.”

Prior to the market opening, the PBOC stuck to its recent strategy by setting a weaker-than-expected midpoint fixing, which market participants interpreted as an official bid to slow gains in the yuan.

The central bank set the currency’s midpoint at 7.0656 per dollar, snapping three straight days of rises, and 87 pips weaker than a Reuters estimate of 7.0569.

“Rapid appreciation is likely not what policymakers wish to see as that could lead to a rush for exporters to convert USD holdings (and) in turn result in disorderly appreciation or higher volatility,” said Christopher Wong, FX strategist at OCBC.

Fresh signs of weakness in the broad economy included further slowing of factory output and retail sales growth in November, weighed by weak domestic demand, boosting the pressure for policymakers to rebalance the $19-trillion economy, as trading partners take issue with its huge surplus.

New bank loans rose less than expected last month, weighed down by a sharp slowdown in household borrowing amid a prolonged property slump.

In global markets, the dollar was nursing losses, with focus squarely on the rate outlooks across major economies as the new year approaches.