China opened the door for further yuan gains, as the central bank strengthened the daily reference rate by the most since August, pushing it past a closely watched level.
The People’s Bank of China set the so-called fixing at 6.9929 per dollar on Friday, compared with 7.0019 in the previous session. The fix limits the onshore yuan’s moves by 2% on either side, and Friday marked the first time in nearly three years that the rate was below 7.
The move suggests the PBOC is prepared to tolerate further yuan gains, with the dollar’s recent weakness likely paving the way for China’s currency to extend its advance. A stronger yuan is in keeping with Beijing’s long-standing goal of internationalizing the currency, though authorities may be cautious about a rapid appreciation that could dent the appeal of Chinese exports.
The fixing is “sending a strong signal from the authorities that they are still comfortable with more yuan appreciation,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group. “In the near term, with the seasonal effect heading into Chinese New Year, we could see dollar-yuan heading toward 6.9 in the coming weeks.”
The Chinese currency rose 0.1% to 6.9639 in onshore trading on Friday, and also edged higher in the offshore market. The dollar is set for its worst week since June, even after President Donald Trump retreated from plans to impose tariffs on European nations opposing his push for Greenland. Earlier in the week, renewed trade tensions had stoked investor concerns over holding US assets.
Dollar sales dominated onshore trading early Friday, while state-owned banks continued buying the greenback to help balance flows, according to traders who asked not to be identified discussing the foreign-exchange market publicly.
The yuan rallied beyond 7 per dollar in December in both onshore and offshore spot trading, and has climbed about 1% versus the greenback over the past month to outperform most of its Asian peers. China’s record $1.2 trillion trade surplus last year, repatriation of capital and optimism toward local stocks all point to further gains in the local currency.
“We believe investors will take a positive read-through on today’s action and stay constructive on the yuan in the months ahead,” said Alex Loo, a strategist at TD Securities. “We believe dollar-yuan could hit 6.8 by the end of the first half of 2026 on further dollar weakness and the PBOC’s tolerance for yuan strength.”
What Bloomberg’s Strategists Say…
“That is as clear a signal yuan bulls could wish for and signals the Chinese central bank wants to fully capitalize on any broad shift away from the US dollar.”
— Mark Cranfield, Markets Live strategist. Click here for the full analysis
Still, analysts expect the PBOC to keep a lid on the pace of the yuan’s gains to avoid a surge in hot-money inflows that could result in asset bubbles and destabilize domestic financial markets. Earlier this week, the central bank held the fixing weaker than 7 despite widespread expectations that it would allow a break as the dollar declined.
BofA Securities said authorities are likely to take steps to limit appreciation this year. Potential measures include removing the 20% risk reserve on banks’ foreign-exchange sales and boosting the reserve-requirement ratio on overseas currencies this year, strategists led by Janice Xue wrote in a note this month.
In another sign that the central bank is in no rush to strengthen the yuan, it is boosting its injections of local currency into the financial system this month. On a net basis, it has added an unprecedented 1 trillion yuan ($144 billion) through longer-dated liquidity tools, reinforcing its commitment to monetary easing.
“I don’t think the PBOC is going to strengthen the yuan that much against the dollar” without a big drop in the greenback, given China’s deflation and reliance on exports, said Carie Li, a strategist at DBS Bank. “I see 6.90-6.93 as the next target levels.”
Despite the move to boost the rate, Friday’s fixing was still weaker than the average forecast of 6.9503 in a Bloomberg survey of traders and analysts.
Bloomberg’s survey typically reflects market estimates of where the PBOC’s fixing should be after overnight moves, based on its methodology but excluding the so-called counter-cyclical factor. As a result, any divergence from the actual fixing can be interpreted as the extent of the PBOC’s daily support for, or restraint on, the managed currency.
The fixing “in our view is significant to dismiss some market narrative that 7 is the line in the sand,” said Wee Khoon Chong, senior APAC market strategist at BNY. “Continued inflows in Chinese assets and the resilient domestic sentiment is positive for the yuan going forward.”
Written by: Bloomberg News
The post “China Paves Way for Yuan Gains as PBOC Boosts Fix Beyond 7” first appeared on Bloomberg