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Amanda Lee

China’s yuan is likely to continue its gains against the US dollar, although further sustained appreciation would largely depend on the scale of the interest rate cuts by the US Federal Reserve, as well as the recovery in the world’s second-largest economy, analysts said.
“The key driver for yuan, together with other Asian currencies, will be the extent of the Fed rate cutting cycle,” said Heng Koon How, head of markets strategy at UOB Group.
“We do expect further possible gradual monetary policy easing from the People’s Bank of China going forward, but the key driver will remain Federal Reserve rate cuts, driving Asian currencies recovery amidst the weaker US dollar backdrop.”
On Monday, the People’s Bank of China set the midpoint rate – around which the yuan is allowed to trade in a 2 per cent band – at 7.1027 per dollar, which was its strongest since May.
The yuan gained 1.9 per cent against the US dollar in August, the largest monthly change since November.
As US inflation has continued to ease, it has cleared the way for a potential first interest rate reduction by the US Federal Reserve since March 2022, which has weakened the outlook for the US dollar.




US Federal Reserve chair Jerome Powell said at the end of last month that “the time has come for policy to adjust”, marking a reversal after 11 interest rate increases from March 2022 until July last year.
And analysts expect there is more room for China’s central bank to ease its policy to provide support amid weak economic momentum reflected in last month’s manufacturing data.
On Saturday, China’s official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners – slipped to 49.1 in August, remaining in contraction for a fourth consecutive month.
“The overall US dollar-Chinese yuan rate spread should be biased to the narrowing side, and I do not look for renewed yuan depreciation in case of the PBOC’s rate cut following the improvement in yuan sentiment,” said Ken Cheung, chief Asian foreign exchange strategist at Mizuho Bank.
Tommy Wu, senior China economist at Commerzbank, said that the PBOC could use bond trading to reduce depreciation pressure that it deemed to be excessive.
The PBOC said on Friday that it had sold long-dated bonds and bought short-maturity securities in a move that resulted in a net purchase of 100 billion yuan (US$14 billion) of debt in August.
The overall yuan exchange rate is likely to fluctuate in both directions and appreciate in a volatile manner
Kaiyuan Securities
“Having said that, pressure on the yuan remains as long as China’s growth momentum remains soft and the housing market remains a source of concern,” Wu added.
But if the US dollar continues to soften in the coming weeks, it could also trigger more Chinese exporters to sell the currency and convert their foreign exchange revenues into the yuan, which could support the Chinese currency, analysts said.
Macquarie Group estimated on Friday that Chinese exporters and multinationals have held over US$500 billion in foreign currencies since 2022.
Conversion into yuan en masse would be a big deal because it might drive up the demand for the yuan significantly over a short period.
However, analysts at Kaiyuan Securities believe such a scenario is unlikely due to China’s weak domestic demand and uncertainty for Chinese exports, while the interest rate differentials between the two countries are also likely to remain significant in the short term.
“As a result, it will restrict the enthusiasm of related foreign trade companies to continue to settle their foreign exchange [into the yuan],” Kaiyuan Securities said on Sunday.
“Therefore, the overall yuan exchange rate is likely to fluctuate in both directions and appreciate in a volatile manner.”


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China’s yuan gained 1.9 per cent against the US dollar in August, which represented the largest monthly change since November


China’s yuan gained 1.9 per cent against the US dollar in August, which represented the largest monthly change since November.


China’s yuan to continue to gain against US dollar, but outlook hinges on Fed: analysts

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}China’s yuan gained 1.9 per cent against the US dollar in August, which represented the largest monthly change since November

China’s yuan gained 1.9 per cent against the US dollar in August, which represented the largest monthly change since November