The yuan strengthened to its most robust level in over four years on Friday, propelled in part by continued tightening of the People’s Bank of China (PBOC) daily fixing and by policy signals ahead of a high-profile meeting between President Xi Jinping and U.S. President Donald Trump scheduled for September 24.
Offshore yuan traded as strong as about 6.7 per dollar, the firmest reading since July 2022. The PBOC has been setting a firmer-than-expected daily reference rate for the eighth consecutive trading day, extending a run that the central bank has not sustained since 2023.
The currency’s advance is occurring as the yuan appears set to record a seventh straight quarterly gain and is the best-performing Asian currency so far this year. Market drivers cited include solid Chinese exports and stronger demand from companies converting foreign-currency receipts into yuan.
Separately, Chinese financial infrastructure has been widened to facilitate more direct trading and settlement between the yuan and other currencies. On September 14, the Shanghai Clearing House began offering central-counterparty services for spot transactions in the Singapore dollar, New Zealand dollar and Thai baht. That initial session involved 12 participating banks and cleared transactions totaling 996 million yuan.
The expansion increases the roster of currencies that can access China’s onshore central-clearing network and may support deeper use of the yuan in cross-border flows. The Shanghai Clearing House already provides central clearing for yuan transactions involving the U.S. dollar, euro, pound, Australian dollar and yen.
Despite the yuan’s resilience, the currency has held up even as the U.S. dollar strengthened after the Federal Reserve’s recent rate decision. The dollar index climbed to a near five-week high earlier in the week, while the yuan traded around 6.71 per dollar.
Domestic credit indicators remain a counterpoint to the currency’s gains. Chinese banks extended only 60 billion yuan in new loans in August, well below economists’ median forecast of 400 billion yuan. Meanwhile, outstanding yuan loan balances are expanding at a record-low pace of 4.9% year-on-year.
Key points
- The offshore yuan rose to about 6.7 per dollar, its strongest level since July 2022, supported by firmer PBOC daily fixings for eight straight sessions.
- China is broadening onshore central-clearing capabilities - Shanghai Clearing House added central-counterparty services on September 14 for SGD, NZD and THB, with 12 banks participating and 996 million yuan cleared in the first session.
- The yuan is on course for a seventh consecutive quarterly advance and is Asia’s best-performing currency this year, helped by robust exports and companies converting foreign-currency earnings into yuan.
Risks and uncertainties
- Domestic credit demand is weak: new loans to the economy were only 60 billion yuan in August versus a 400 billion yuan forecast, and outstanding yuan loans rose at a record-low 4.9% year-on-year - this could weigh on economic momentum and currency dynamics.
- Global dollar strength: the U.S. dollar index rose to a near five-week high earlier in the week, creating an external force that could counter yuan gains depending on future Fed policy and market moves.
- Geopolitical and policy-related uncertainty around the upcoming Xi-Trump meeting on September 24 - trade and economic ties will be central to that discussion and could introduce volatility in currency and trade-sensitive markets.
As China opens its onshore clearing architecture to a broader set of currencies, market participants will be watching whether easier direct settlement encourages increased yuan usage in cross-border transactions. At the same time, the tension between a firmer currency and soft domestic loan growth highlights the uneven dynamics underpinning China's macro landscape.
Corporate treasurers, exporters and importers, as well as currency traders, are likely to monitor both further PBOC fixing behaviour and adoption of the expanded central-clearing services when assessing currency exposure and settlement strategies.