Global Market: China's yuan holds near 3-year high despite strong dollar; PBOC fixing supports currency

China's yuan held near its strongest level in three years and nine months on Tuesday. Central bank guidance is helping the currency withstand a stronger US dollar amid renewed concerns over global energy supplies and elevated US Treasury yields, according to a report by Reuters.

The onshore yuan was largely unchanged at 6.6972 per dollar, hovering near its strongest level since January 16, 2023. The offshore yuan traded at 6.698 per dollar, down around 0.05% during Asian trading.

The dollar index remained near an 18-month high as renewed attacks on energy infrastructure in the Middle East and Ukraine heightened concerns about energy supply disruptions. Elevated US Treasury yields also supported the greenback, limiting the yuan's advance.


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According to Reuters, analysts at Huatai Securities said dollar strength was primarily slowing the pace of yuan appreciation rather than triggering a sustained depreciation trend. They noted that corporate foreign exchange settlement and a steady central bank midpoint fixing continued to support the Chinese currency.

The yuan is likely to remain range-bound in the near term as investors await clearer signals on the US Federal Reserve's interest-rate trajectory ahead of the US midterm elections, the analysts added.

PBOC sets strongest yuan midpoint since February 2023

Before the market opened, the People's Bank of China (PBOC) set the yuan's daily midpoint at 6.7298 per dollar, its strongest fixing since February 2, 2023. The fixing was 317 pips weaker than a Reuters estimate, suggesting the central bank continued to signal caution about the currency's appreciation.

The PBOC has set its daily official yuan guidance weaker than market expectations for nearly a year. Traders and analysts have interpreted the practice as an effort to moderate the currency's gains and prevent excessively rapid appreciation, the report stated.

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The onshore yuan is permitted to trade within a 2% band on either side of the daily midpoint.

China pushed back against foreign criticism of its exchange-rate policy last week, saying it had never pursued competitive currency depreciation and that market forces played a decisive role in determining the exchange rate.

Yuan outlook remains positive, but rapid gains unlikely

China's trade surplus and potential demand for foreign exchange settlement are expected to provide continued support to the yuan, although analysts see limited scope for a sharp, one-way rally in the near term.

According to Reuters, analysts at China Securities expect the renminbi to appreciate modestly for the remainder of the year, with the dollar-yuan exchange rate trading around 6.6–6.7 by year-end.

The outlook will depend on developments in US monetary policy, movements in the dollar and Treasury yields, and the strength of China's external trade flows.

For now, the yuan's resilience despite a stronger dollar suggests that domestic policy guidance and foreign exchange supply dynamics remain important factors shaping the currency's direction, as per the report.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)