The Chinese yuan has surged to a new cyclical peak against the U.S. dollar, showcasing notable strength in recent trading sessions. As of September 23, the onshore and offshore yuan have appreciated by 4.04% and 3.85% respectively against the dollar so far this year.
On September 18, both the onshore and offshore yuan broke through the 6.7 mark, a key psychological threshold. Following this, on September 21, the onshore yuan closed at 6.6955, with the offshore rate settling at 6.6927, both reaching their highest levels since July 2022. Subsequently, the yuan has slightly retreated and is now fluctuating around the 6.7 level.
Notably, on September 17 (Beijing time), the Federal Reserve announced its latest policy decision, raising the federal funds rate target range by 25 basis points to 3.75%-4.00%. This marks the first rate hike since July 2023. Typically, such a move bolsters the dollar and pressures non-USD currencies. Yet, despite a stronger dollar index, the yuan has shown remarkable resilience.
Ming Ming, chief economist at CITIC Securities, noted that while the Fed's September rate hike was in line with expectations, the accompanying hawkish signals from the dot plot and Fed Chair Warsh's comments drove a notable dollar rally. However, the yuan remained stable, even breaking the 6.7 barrier on September 18.
Yang Changlong, senior investment advisor at Shaanxi Jufeng Investment Advisory, attributes the yuan's appreciation to robust external demand and China's rising manufacturing competitiveness. This has sustained strong export growth, particularly in sectors like electromechanical products and new energy, which have seen exceptional performance. The sustained trade inflows and concentrated corporate FX conversion needs have jointly propelled the yuan higher against the dollar.
Looking ahead, Ming Ming predicts that the yuan will likely remain on an upward trajectory. This outlook is supported by the dollar's long-term credit concerns, persistent strength in China's export sector, ongoing corporate demand for FX conversion, and ample policy tools available to the central bank for maintaining exchange rate stability. In the short term, the yuan may experience fluctuations around the 6.7 level, influenced by external factors such as shifts in Fed monetary policy expectations and U.S. inflation data.
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