MNI: Yuan In Slow Rally Amid Dollar Weak Cycle – Advisors

The yuan is likely to continue its moderate appreciation against the dollar this year, allowing Chinese exports to remain competitive around the world as the U.S. currency enters what could be a decade of weakness, Chinese policy advisors and traders told MNI.

The yuan is likely to strengthen by about 5% to the dollar, and to trade between 6.60 and 7.0 from its current 6.95, said Lian Ping, director of the China Chief Economist Forum. Any sharp yuan rally however is out of the question under the managed exchange rate regime, as it would hit demand for exports, he said, adding that, barring a fresh trade war with the U.S., depreciation above 7.0 is improbable.

Rapid yuan gains since the end of 2025 were mainly driven by dollar weakness and expectations for Federal Reserve rate cuts, which prompted Chinese exporters to exchange dollars, but this impetus may slow after year-end trade settlements, he said. State Administration of Foreign Exchange data showed the bank-client net forex settlement surplus reached a record USD99.9 billion in December.

The People’s Bank of China has leaned against appreciation since December, setting its central parity rate weaker than expectations, with the gap reaching 500 pips last Monday. Still, the fixing price broke through 7.0 last on Jan 23 for the first time since May 2023. (See MNI INTERVIEW2: China’s Yuan Needs Greater Flexibility – Huang)

The yuan is likely to rise less than other currencies against the dollar, supported by a stable economy with diversified exports and resilient commerce, according to Lian, who pointed to recent of visits by foreign leaders as boding well for a continued large trade surplus.(See MNI: China Buying Time For 'Competitive Coexistence'- Advisors)

The Dollar Index could potentially fall to 90 this year or lower from the current 97 should the Fed ease after new Chair Kevin Warsh takes office in May, said Lian, who thinks the dollar has entered a downward cycle which could last more than a decade. 

Another policy advisor said the yuan’s performance will depend on the dollar, whose outlook is uncertain though DXY is unlikely lose another 10% this year. If DXY fluctuates between 95 and 100, the yuan should range between 6.7 and 7.1, he said.

Implied yuan-dollar volatility has slid since the beginning of 2026, despite the yuan’s appreciation by more than 800 pips in December, indicating that most still see moderate strengthening as the main trend, the advisor said. China’s weak domestic demand means exports remain a key support for growth, he stressed.

The dollar weakness which only ceded with the naming of Warsh was predictable, according to Lian, who expected it to resume as the U.S. government borrows heavily. There are signs also President Donald Trump’s unpredictable policies have prompted a retreat from dollar assets, with U.S. Treasuries under pressure and a surge in gold, he said.

The U.S. sovereign rating could face downgrades, Lian warned, or declines in the dollar and bonds could undermine a bubbly U.S. stock market.

STABLE YUAN

China Foreign Exchange Investment Research Institute chief analyst Sun Bin said the yuan’s range this year should be less than last year’s 3,500 pips, as 2026 marks the beginning of the 15th Five-Year Plan, making exchange rate stability more important. He saw a range of 6.85 to 7.20.

The yuan could find short-term support during February to April as Chinese equities likely draw in foreign capital via the offshore market, Sun said. But a resumption of Trump’s tariff offensives, triggering yuan depreciation, is a risk at year-end after U.S. midterm elections, he added. 

An FX trader noted that the yuan has appreciation less against the dollar than other major currencies such as the euro. The RMB CFETS Index of a basket of currencies corrected sharply at the end of January, falling 1.25% to 96.99 in the week to Jan 30, its largest weekly drop since April.

The RMB Index correction could continue if the recent round of dollar weakness resembles that of 2025, the trader noted. From last April the euro rallied from USD1.08 to above USD1.18 in five months, while the yuan appreciated only about 2%.  

However, Lian said a moderate yuan rise against the euro cannot be ruled out. This would help sustain China-Europe trade cooperation, he said, adding that China’s electronics-heavy export structure is competitive and profitable, and that a slightly smaller China-EU trade surplus would have little impact on overall exports.