China’s yuan strengthened to its highest level against the US dollar in four years on Monday, extending its longest winning streak since May. Lower oil prices and declining US Treasury yields put pressure on the dollar, supporting the Chinese currency.
Meanwhile, investors remained cautious ahead of several major central bank meetings and important policy discussions in China.
Central Bank Meetings and China’s Policy Outlook
Financial markets are closely watching upcoming interest rate decisions from the US Federal Reserve, Bank of Japan (BOJ), and European Central Bank (ECB).
All three central banks are widely expected to leave interest rates unchanged. However, policymakers could maintain a hawkish stance, signaling that monetary conditions may remain restrictive.
In China, attention is also shifting toward the Communist Party’s fifth plenum. Investors will look for fresh signals about Beijing’s economic priorities and future policy direction.
China’s Central Bank Sets Stronger Yuan Reference Rate
Before trading began, the People’s Bank of China (PBOC) established the yuan’s daily midpoint at 6.7162 per US dollar. This marked its strongest official reference rate since February 2, 2023.
Under China’s exchange rate system, the onshore yuan can fluctuate by up to 2% above or below the central bank’s daily midpoint.
However, Monday’s fixing was 471 pips weaker than Reuters’ market estimate of 6.6691. This represented the largest weaker-than-expected adjustment since September 23.
Although the PBOC has gradually strengthened its currency guidance throughout the year, its daily fixings have remained weaker than market expectations.
According to Barclays analysts, this approach suggests that Chinese authorities want to prevent excessive currency volatility while controlling the speed of the yuan’s appreciation.
Chinese Yuan Extends Winning Streak Against the Dollar
In onshore trading, the yuan briefly reached 6.6682 per dollar, its strongest level since June 2022. It subsequently traded near 6.6691 at 02:52 GMT.
If the currency maintains its gains through the late-night close, it will record eight consecutive sessions of appreciation. That would represent its longest winning streak since May.
Meanwhile, the offshore yuan traded around 6.6688 per dollar, gaining approximately 0.01% during Asian trading hours.
The latest advance reflects continued support for the Chinese currency as the US dollar faces pressure from declining Treasury yields and weaker energy prices.
Goldman Sachs Sees Further Yuan Appreciation
Analysts at Goldman Sachs believe the Chinese yuan could continue strengthening gradually over the coming months.
The investment bank argues that market forecasts may underestimate the currency’s appreciation potential, particularly given its historically undervalued starting point.
Nevertheless, Goldman Sachs cautions that a stronger yuan alone cannot resolve China’s broader economic challenges.
The bank emphasizes that Beijing must also introduce measures to stimulate domestic demand and support sustainable economic growth.
Despite these challenges, Goldman Sachs maintained its 12-month yuan forecast at 6.40 per US dollar, suggesting further appreciation from current levels.
Overall, the yuan’s recent strength highlights a shifting currency market environment. However, upcoming central bank decisions and China’s domestic policy announcements could play an important role in determining its next direction.
