(Dec 30): The yuan strengthened beyond the key seven-per-dollar level in the more tightly controlled onshore market for the first time since 2023, signalling China’s comfort with further currency appreciation.
The currency rose as much as 0.2% to 6.9900 per dollar in local trading on Tuesday, amid a mild decline in the greenback and year-end foreign-exchange sales by Chinese corporates and exporters. The move came after the offshore yuan breached the closely watched seven level last week.
Major Chinese banks increased purchases of the dollar after the onshore yuan advanced beyond the 7 level, according to traders who asked not to be identified as they are not allowed to speak publicly. Selling in the greenback was heavy partly due to corporate settlement needs, they added.
“There could be more appreciation ahead for the yuan, supported by foreign capital inflow, expectation of growth recovery and tech optimism,” said Wee Khoon Chong, a market strategist at BNY. “We have high confidence that the yuan will rally into 2026 supported by flows and economic recovery.”
The latest move highlights Beijing’s balancing act as it seeks to steer the yuan toward a path of gradual appreciation while avoiding a sharp move that could trigger a surge of hot-money inflows. A stronger domestic currency has the benefits of making China’s imports cheaper and aiding authorities’ long-term goal of internationalising the currency.
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The yuan’s breakthrough in the local market, where it’s confined by a 2% trading band centered around its daily reference rate, is often considered more significant than the moves in largely unrestricted offshore trading. Authorities also keep a firmer grip onshore, where state banks were seen in December helping with official efforts to slow the yuan’s climb.
Some Wall Street analysts have predicted that China’s currency will continue to appreciate, with Goldman Sachs Group Inc issuing a 12-month forecast in November for 6.85 and Bank of America Corp pencilling in a level of 6.8 for next year.
The yuan is heading for its best annual performance in five years as growing optimism about the nation’s assets and economy outweighs concerns over US trade tensions.
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But policymakers have cautioned against rapid moves, and the PBOC said in a report released in late December that it will maintain exchange rate flexibility, while guiding expectations and guarding against “overshooting risks.” The central bank has used a weaker-than-expected daily reference rate in recent weeks to slow the yuan’s gains and state media has cautioned against making one-way bets on the currency.
“The elements are in place to support the renminbi for extended gains as long as the pace is steady. Moreover, looking back over the moves of the past several years there is nothing to suggest the 7.0 line holds any great importance for the PBOC,” said Bloomberg strategists.
It’s also worthwhile to note that while the yuan has strengthened over 4% against the dollar this year, it has weakened against the currencies of many of China’s other trading partners. An official gauge measuring the yuan’s strength on a trade-weighted basis has dropped 3.8% in 2025.
“If we see sharp movements below 7.0 then that’ll invite actions from PBOC, but if it’s a gradual decline possibly not,” said Mingze Wu, a trader at StoneX in Singapore. “There are good reasons why PBOC will be happy with a slightly stronger yuan as long as the movement is not drastic.”
Uploaded by Magessan Varatharaja
