The Chinese yuan hits a new 14-month high after dollar weakness

China’s yuan climbed to a new 14-month high against the dollar on Monday as broad-based weakness in the US currency overcame concerns about an economic slowdown at the Asian giant and a softer-than-expected official forecast correction. Higher seasonal business demand also supported the yuan, as exporters typically convert a larger share of foreign exchange receipts into various payments and administrative obligations due towards the end of the year. In the spot market, the onshore yuan rose 0.05% to 7.0508 per dollar by 0323 GMT, the strongest since October 8, 2024.

Its offshore counterpart fetched $7.0487, up about 0.08% in Asian trading. “We still see a rise in USD/CNY to 7.05 by year-end, but do not expect a sustained move above this level,” Barclays analysts said in a note. “Given that exports remain a key growth driver for the economy, we do not expect the People’s Bank of China (PBOC) to facilitate a sharp appreciation of the currency, despite positive Q4 tailwinds from exporters’ USD sales.”

Ahead of the market open, the PBOC stuck to its recent strategy by instituting a weaker-than-expected midpoint fixing, which market participants interpreted as an official bid to slow the yuan’s rise. The central bank set the currency’s midpoint at 7.0656 per dollar, breaking three straight days of gains and 87 pips weaker than a Reuters estimate of 7.0569.

“Rapid appreciation is probably not what policymakers want to see as it could lead to a rush by exporters to convert their assets into USD (and) in turn result in disorderly appreciation or higher volatility,” said Christopher Wong, FX strategist at OCBC. New signs of weakness in the broader economy included a further slowdown in factory output and retail sales growth in November, weighed down by weak domestic demand, increasing pressure on policymakers to rebalance the $19 trillion economy as trading partners fret over the huge surplus.

New bank loans rose less than expected last month, pressured by a sharp slowdown in household lending amid a prolonged real estate crisis. The dollar led losses in global markets, with the focus squarely on the interest rate outlook in major economies as the new year approaches. Key onshore versus offshore levels: * Overnight dollar/yuan swap onshore -5.10 pips versus offshore -5.10

* Three-month SHIBOR 1.6% vs. 3-month CNH HIBOR 1.8% LEVELS AT 0323 GMT: INSTRUMENTS CURRENT UP/DOWN(-) % CHANGE DAY HIGHEST DAY vs. USD US. LAST YEAR TO DATE LOW CLOSE % Spotyuan 7.0508 0.06 3.52 7.0508 7.0565 Offshore 7.0487 0.08 4.07 7.0484 7.055 yuan spot.