MNI: Yuan To Track Dollar Higher, Fixing Stable-China Traders

The yuan is likely to appreciate against non-dollar currencies in coming weeks as the People’s Bank of China seeks to maintain a stable yuan fixing against the U.S. currency while world financial and energy markets are buffeted by the Iran conflict, Chinese forex traders told MNI. 

But while the yuan’s currency basket exchange rate is likely to appreciate further, the chances for rapid gains against the dollar have decreased, a Hong Kong trader said. The wave of dollar strength since the U.S.-Israeli attack on Iran would have provided the PBOC with a good opportunity to curb recent yuan gains against the greenback if it wanted to do so, and yet Tuesday’s fixing has not been adjusted toward depreciation, indicating the central bank is still comfortable with the current level, he said. (See MNI: Yuan In Slow Rally Amid Dollar Weak Cycle – Advisors)

Nonetheless, the removal by the PBOC of the foreign-exchange risk reserve ratio for forward FX sales on Monday sent a clear signal of dissatisfaction with last week’s fast rally, a trader based in Shanghai told MNI. Another driver of Chinese currency strength, seasonal foreign exchange settlements, has slowed as exporters’ financial season concludes, though further stronger fixings cannot be ruled out, he added.

The yuan’s central parity rate against the dollar strengthened by 148 pips to 6.9088 on Tuesday, the strongest since May 4, 2023 in the fixing’s biggest one-day appreciation since August 25, 2025.

The yuan’s recent moves have shown a weak correlation with the dollar index, so a short-term strengthening of the greenback puts no significant pressure on the Chinese currency, which may even serve as a safe haven during geopolitical turbulence, the Hong Kong trader said.

While the dollar has benefited from the U.S.’s position as an energy exporter as oil and gas prices surge, it is unlikely to see any sustained appreciation, the Shanghai trader said. If the conflict de-escalates and oil prices retreat, so will the dollar, while a sustained war would also pressure the U.S. currency, the trader said. (See MNI: Lower China GDP Growth Eyed Amid Economic Headwinds)

An analyst in Beijing predicted the yuan would trade in a range of 6.85-6.90 in the short term, while over the year as a whole the currency’s fluctuation range will stay at about 3500 pips, as a stable yuan is required in the first year of China’s 15th Five-Year Plan. This would imply a range of 6.80-7.15 against the dollar. 

In 2025, the onshore yuan's volatility range was also about 3,500 pips, a significant narrowing compared to annualised fluctuation ranges of 6,500-10,000 points in previous years.