SHANGHAI: China’s yuan hovered near a 3-1/2-year against the dollar on Monday, as reduced expectations of an October US rate hike lent support, while simmering trade tensions could cloud the outlook.
The yuan’s appreciation is also being tamed by China’s widening yield gap with the US, while jitters over Europe’s debt problems bolster the safe-haven greenback.
In addition to expected Federal Reserve rate hikes, “the dollar strength now gets another leg of support from a weaker euro,” Huatai Futures analyst Cai Shaoli said.
“If the dollar remains strong…the yuan will be under pressure.”
On Monday, China’s onshore yuan slightly firmed in late-morning trade, changing hands at 6.6920 per dollar.
Prior to market open, China’s central bank set the yuan’s midpoint at 6.7313 per dollar, the firmest since February 2, 2023.
The dollar index lingered near its strongest in a year and a half on Monday, as recent economic data reduced the odds of a follow-up rate hike this month.
The Chinese currency has gained about 4% against the dollar this year, and has advanced roughly 9% since late 2024 in a seven-quarter rising streak.
Fan Yongjia, analyst at COFCO Futures, said the yuan was supported by resilient Chinese exports and bullish calls from western banks that view the currency as undervalued. But Fan warned its rally faces speed bumps as trade protectionism rises.
“Changes in external demand for Chinese manufactured goods threaten the yuan’s uptrend.”
Underscoring such a risk, China and the European Union reached a deal that could cut Chinese exports of hybrid cars to the bloc by more than half, European Trade Commissioner Maros Sefcovic said on Friday after talks in Beijing aimed at reducing the EU’s ballooning trade deficit with China.
Another factor pressuring the yuan is the widening US-China yield gap, according to China Merchants Futures.
With the dollar index staying above 102, “the foundation of one-sided yuan appreciation is not solid,” the brokerage said in a note, expecting the yuan to see-saw in a range of 6.65-6.75 per dollar.