The Chinese yuan climbed to a fresh 14-month high against the U.S. dollar on Monday, extending its strongest multi-month rally in four years and raising expectations that the currency could soon test the closely watched 7.0 threshold.
The onshore yuan (USDCNY) strengthened to 7.0650, its firmest level since October 11, 2024, before stabilising in early Asian trading. The offshore yuan (USDCNH) traded near 7.071 per dollar, up around 0.04%.
Why the yuan is rallying
Analysts attribute the recent appreciation to a combination of supportive factors:
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Strong performance in Chinese equities
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Year-end dollar conversions by exporters
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Rising expectations of a U.S. Federal Reserve rate cut
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Improved market sentiment toward the yuan
The accelerating uptrend has encouraged bullish bets, with many traders positioning for further gains.
Guan Tao, global chief economist at BOCI China, said the appreciation momentum could “possibly push the yuan to break through the 7 level.” However, he cautioned that “it’s uncertain if the yuan can stabilise below the 7 handle,” urging markets not to assume a one-way move.
PBOC stance under watch
Before markets opened, the People’s Bank of China (PBOC) set its daily midpoint at 7.0759, the strongest since October 14, 2024, though still marginally weaker than Reuters’ estimate.
The spot yuan is allowed to trade within a 2% band on either side of the midpoint each day.
Traders are now watching the upcoming Central Economic Work Conference for policy signals on exchange-rate management and the PBOC’s tolerance for further appreciation.
Mixed economic signals
Fresh data showed that factory activity contracted for an eighth consecutive month, according to an official PMI survey released Sunday. A private survey on Monday confirmed the continued slowdown.
Despite the weakness, ANZ analysts said China’s “downside growth risks look manageable,” noting that sentiment has turned more supportive for the yuan. ANZ forecasts the currency to strengthen to 6.95 per dollar by end-2026, while warning that quicker appreciation is possible if authorities allow it.
Dollar weakens ahead of possible Fed rate cut
The U.S. dollar opened December on the back foot as traders increasingly expect the Federal Reserve to cut rates this month. The CME FedWatch tool shows an 87% probability of a 25-basis-point cut next week.
Key onshore vs. offshore indicators
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Overnight dollar/yuan swap: Onshore -6.00 pips | Offshore -6.00 pips
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3-month SHIBOR: 1.6%
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3-month CNH HIBOR: 1.8%