China's yuan hits four-year high ahead of key policy meetings
China's yuan strengthened to a fresh four-year high against the US dollar on Monday, extending its longest winning streak since May. Analysts say the central bank is managing the pace of appreciation ahead of major central bank meetings and China's fifth plenum.
China's yuan climbed to a fresh four-year high against the dollar on Monday, extending its longest winning streak since May, as softer oil prices and US Treasury yields weighed on the greenback, ahead of key policy meetings at home and overseas.
Prior to market opening, the People's Bank of China set the midpoint rate at 6.7162 per dollar, its strongest since 2 February 2023. The spot yuan is allowed to trade a maximum of 2 per cent either side of the fixed midpoint each day. Monday's midpoint was 471 pips weaker than a Reuters estimate of 6.6691 — its largest weak-side deviation since 23 September.
In the spot market, the onshore yuan hit a high of 6.6682 per dollar at one point, the strongest level since June 2022, before last trading at 6.6691 as of 0252 GMT. If it retains the gains at the late-night close, the onshore spot yuan would have booked an eighth straight session of rises, the longest winning streak since May. Its offshore counterpart last fetched 6.6688 per dollar, up about 0.01 per cent in Asian trade.
Investors were cautious ahead of major central bank meetings due later this week, with the US Federal Reserve, Bank of Japan and European Central Bank widely expected to keep rates unchanged while maintaining a hawkish tone. Attention will also turn to China's fifth plenum for fresh policy clues.
The central bank has been gradually strengthening its daily yuan official guidance this year, but at levels weaker than market expectations, suggesting it is seeking to manage the pace of appreciation, traders and analysts said. "The PBOC continues to resist a faster pace of appreciation via weaker than-market-expected fixings," analysts at Barclays said in a note. "We think the PBOC's reaction function points to a stronger floor against disorderly weakness, while the fixing should continue to constrain the pace of gains as the trade-weighted currency strengthens."
Goldman Sachs analysts said in a note: "We continue to think that a gradual but sustained currency appreciation is underway but consensus forecasts and forward markets underestimate how far this process can run given the deep undervaluation starting point." They maintained their 12-month target for the yuan at 6.40 per dollar, adding: "Ultimately, currency appreciation alone will not address China's economic challenges.. that needs both currency appreciation and support for domestic demand, two instruments to hit two targets."