MNI: Yuan Seen Around 6.80 To Dollar Before Gradual Gains

Chinese authorities are becoming more concerned by the speed of appreciation of the yuan, with the currency likely to remain near its current 6.80 to the dollar for some time, though significant progress in resolving the Iran conflict could help it approach 6.75, with 6.70 potentially in sight by the end of the year, advisors and analysts told MNI.

A Politburo meeting on April 28 signalled a shift to guard against excessively rapid appreciation, a policy advisor said, noting how officials reiterated for the first time in a year the need to "maintain the yuan exchange rate basically stable at an adaptive and equilibrium level.” The shift may have been calculated to prevent further fast strengthening of the RMB basket, which would exert pressure on exports, the advisor said.

The CFETS RMB Index, which tracks the yuan against a basket of 24 currencies, rose to around 100 in mid-March, reaching its highest levels in a year, with many Chinese companies reporting substantial losses from their foreign exchange holdings in first-quarter results.

While 6.80 to the dollar is already a level which is hurting firms’ profit margins, further fast appreciation could attract the unwanted attention of speculative capital, the advisor said.

The Politburo’s new stance is likely to indicate that authorities will permit less exchange rate flexibility from now on, a forex analyst told MNI, adding that he will closely monitor the fixing price to see whether the People’s Bank of China strengthens its so-called “counter-cyclical factor.” The PBOC could also raise foreign exchange reserve requirement ratios, perhaps prompting the appreciation trend to pause temporarily or even reverse, he added. If the fixing price stays at its current level of around 6.85 during May, the central level of the exchange rate will also remain broadly stable, he said.

SUPPORTS

On Thursday, the offshore USDCNH rate breached the key 6.80 level, touching an intraday low of 6.7977, the lowest since 2023, as positive expectations surrounding the U.S.-Iran peace agreement weighed on the dollar and as the PBOC set a strong fixing.

Recent rapid appreciation has been driven not only by the fall in the dollar index to around 97.85, but also by a significant increase in foreign exchange settlement and rising foreign capital inflows into A-shares, the analyst said. The recent rise in the yen has also provided support for the yuan, by pushing the dollar index lower, he said. (See MNI INTERVIEW: China 2026 Export Growth To Support Yuan)

With expectations of further appreciation spreading, exporters are already converting dollar earnings into yuan more quickly, according to the analyst. This contributed to the selling pressure that pushed the currency through 6.80, together with stop-loss orders, he added.

Thursday’s fixing at 6.8487, the strongest since January 2023, was taken by market players as a "green light" for appreciation, a forex trader said, though he noted that this signal seemed to change on Friday when the fixing was set higher at 6.8502.

The dollar could still make a short-term technical-driven recovery against the yuan, the trader noted, pointing to net short USDCNY positions at near-historic highs, with geopolitical escalation or a hawkish Fed statement providing potential triggers for short-covering. Some state-owned banks began buying dollars in April, and on Thursday were active in the onshore market at around 6.8030, he continued, adding that a possible dollar bounce could extend to around 6.82-6.84, before a likely resumption of yuan strengthening, with 6.75 the next key level.

By the end of the year, the yuan could even reach 6.70, the trader said, adding that the upcoming visit to China by U.S. President Donald Trump could also provide a catalyst for gains. (See MNI: China Advisors See Incremental Progress From Trump-Xi)

INTERNATIONALISATION

Over the longer term, more support for the yuan could come from trade settlement and cross-border payments, according to the advisor, who pointed to the growing use of the currency to buy commodities including energy and metals. As an example, he noted the supply agreement reached between BHP Billiton and China Mineral Resources Group which could include two domestic iron ore indices in the pricing basket for the first time.