China’s onshore yuan strengthens past 7 per dollar

SHANGHAI: China’s onshore yuan broke through the psychologically important 7-per-dollar level on Tuesday for the first time in 2-1/2 years, despite the central bank setting a weaker midpoint, as exporters rushed to sell US dollars ahead of the year-end.

In early afternoon trading, it hit 6.9960 per dollar, the strongest since May, 2023.

The yuan has gained roughly 5% against a softening dollar since early April.

The People’s Bank of China has sought to prevent the yuan from overshooting through weaker guidance rates and verbal warnings, but has not been able to reverse the currency’s strengthening trend.

On Tuesday, the central bank set the midpoint rate at 7.0348 per dollar, 236 pips weaker than Reuters’ estimate. The spot yuan is allowed to trade a maximum of 2% either side of the fix each day.

After a softer opening, the yuan soon rose and broke through the 7 per dollar level in the early afternoon.

Guosheng Securities attributed the yuan’s recent strength to a weakening dollar and a rush to sell dollars by exporters who usually convert more foreign exchange receipts into local currency towards the end of the year.

The brokerage expects the rush to extend until the Lunar New Year, China’s biggest holiday, which next year falls in the middle of February.

“Looking ahead into 2026, the yuan is expected to strengthen steadily, zig-zag higher,” the brokerage said in a note to clients.

“However, the road will be bumpy, with continuous, drastic one-way appreciation unlikely.” China Securities said the yuan would fluctuate around 6.9-7.0 per dollar next year based on economic fundamentals.

Taking into account the comparative appeal of China’s capital markets, the yuan could strengthen to 6.5-6.6 per dollar, the brokerage added. But over the short term, China Securities cautioned that the yuan’s pace of appreciation would be affected by the central bank’s guidance rate and China’s relations with trading partners.

“The trend of exports, Sino-US trade talks, and the international trade environment are all key elements” likely to affect the room for yuan appreciation, the brokerage said.‑Reuters