Yuan hits fresh 32-month high as fixing closes in on 7 per dollar mark

HONG KONG: China’s yuan hit a fresh 32-month high against the dollar on Tuesday as the central bank’s daily fixing neared the key 7.00 level, while seasonal settlement flows and greenback weakness helped to fuel the rally.

 The yuan strengthened to as much as 6.9593 against the US dollar, the strongest level since May 2023, before easing to trade at 6.9615 at 0231 GMT.

Its offshore counterpart traded at 6.9568 yuan per dollar , up about 0.01% in Asian trade.

The strength extended the yuan’s eight-week rally, which was the longest weekly winning streak since 2020, thanks to a string of positive factors including a weaker greenback and increased year-end demand from exporters.

“Foreign exchange settlement is now at a seasonal peak … a key driver behind the currency’s recent strength,” analysts at CICC wrote in a note.

Export surges also boost underlying settlement demand, which creates an oversupply of dollars, analysts at the Huatai Futures Research Institute said.

China hit its 2025 gross domestic product growth target thanks in part to an export boom; it reported a record trade surplus of nearly $1.2 trillion for the year.

Before the market opened on Tuesday, the People’s Bank of China set its midpoint rate for the yuan at 7.0006 per dollar - its strongest since May 2023 - which was 430 pips weaker than a Reuters estimate.

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

The dollar’s weakness also contributed to the yuan’s strength. The dollar index, which measures the greenback against a basket of currencies, slid to its lowest level in a week, as the US’ Europe tariff threat over Greenland revived talk of a “Sell America” trade.

 “Short-term, with dollar pressure intensifying, the yuan’s strength bias may become more pronounced, with potential to test the 6.90-6.95 range,” analysts at the Huatai Futures Research Institute said.

 In other news, China left benchmark loan prime rates unchanged on Tuesday for the eighth consecutive month in January, as expected.

 Analysts said that suggested policymakers are in no hurry to deliver broad-based monetary easing after rolling out sector-targeted rate cuts last week.

They expected reductions to benchmark rates to come in the first or second quarter.