Key Takeaways
- China’s yuan reached its highest level in over four years on Wednesday.
- Export growth and a weaker dollar supported the yuan’s appreciation.
- The currency is up 4.7% this year, with net forex inflows estimated at $50 billion in September.
China’s yuan traded at its strongest level in over four years on Wednesday, reaching 6.6765 per dollar, according to market reports. This appreciation was driven by robust export growth and a broadly weaker dollar, which reduced the appeal of the US dollar.
The greenback fell to a three-week low in the previous session, with lower Treasury yields and weaker oil prices contributing to its decline. The yuan’s strength was further reinforced by China’s third quarter economic growth, which exceeded expectations, as export resilience offset consumer spending constraints.
Caitong Securities analysts noted that domestic economic resilience, capital inflows, and rising corporate demand to convert foreign exchange earnings into yuan have combined to support the yuan’s upward trend. The central bank has gradually allowed the daily midpoint to strengthen alongside the yuan’s rise, with the People’s Bank of China setting the midpoint rate at 6.7192 per dollar, its strongest since February 2, 2023.
Goldman Sachs estimated that China attracted net forex inflows of $50 billion in September, with the FX conversion ratio edging up to 66% from 63% the previous month. The yuan is up 0.4% against the dollar this month and 4.7% firmer this year, reflecting the currency’s resilience and the market’s confidence in China’s economic performance.
However, analysts caution that the appreciation pace may slow down going forward as geopolitical uncertainties could provide support to the dollar and marginally dampen capital inflows. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day, with the offshore yuan trading at 6.6786 per dollar, down about 0.05%.
The central bank’s gradual approach to allowing the yuan to strengthen has been a key factor in maintaining market stability. Analysts believe that the yuan’s strength is a reflection of China’s economic resilience and the country’s ability to manage its foreign exchange markets effectively.
