Yuan hits 3.5-year high at 6.7442 as trade surplus, inflows build

The onshore yuan rose 59 basis points to 6.7442 per dollar on Aug. 10, its highest close since Feb. 2, 2023, as export strength and capital inflows kept the currency in an appreciation channel.

"Export momentum remains the main driver of yuan strength this year, and with trade structure improving, the surplus should stay elevated," said Wen Bin, chief economist at China Minsheng Bank, who expects the currency to trade around 6.75 in August with two-way fluctuation.

The People's Bank of China set the daily central parity at 6.7884, up 20 basis points and the strongest since Feb. 10, 2023. July exports rose 23.9 percent from a year earlier, beating forecasts, while the State Administration of Foreign Exchange reported net cross-border capital inflows. The yuan's gains come as the dollar index has held relatively steady this year.

The appreciation pressures exporters' margins even as it lowers import costs and the burden of dollar-denominated debt. Analysts see the currency trading in a 6.7-7.0 band in the second half, with Huaxi Securities projecting a move toward 6.7 in the near term and a medium-term appreciation channel supported by yuan internationalization.

Policy stance keeps the band wide

Wang Qing, chief macro analyst at Golden Credit Rating, said the yuan is more likely to move in two-way swings than repeat the first half's sustained appreciation, given the drag from Middle East conflict on global growth, uncertainty over the AI investment boom, and a stable dollar. He sees a 6.7-7.0 range for the second half, with the full-year path "first rising, then stabilizing."

The PBoC, at its July 2026 second-half work conference, reiterated that it would keep the market decisive in exchange-rate formation, maintain flexibility, and strengthen guidance to keep the yuan basically stable at a reasonable, balanced level. The central bank has also pledged timely adjustments to monetary policy tools while maintaining an appropriately loose stance, and it reaffirmed support for the panda bond market as part of deepening financial reform.

Strategic appreciation and yuan internationalization

Liu Tao, a senior researcher at the China Chief Economist Forum's Institute of International Finance, argues the yuan faces a strategic appreciation trend over the "15th Five-Year Plan" period and beyond. He projects the 2026 central parity to trade in a 6.6-7.0 range, with the offshore yuan moving in a wider band, in a pattern of "two-way fluctuation with moderate strength."

Beijing's push to internationalize the yuan supports this view. The PBoC has vowed to expand the currency's international use in its five-year plan, and Hong Kong in recent weeks launched the world's first offshore Chinese government bond futures, giving global investors a new tool to hedge interest-rate risk and deepening cross-border investment.

The last time the yuan traded at these levels, in early 2023, it subsequently weakened as the dollar regained strength and China's recovery faltered. This time, the trade surplus and capital inflows provide a firmer foundation, though the pace of appreciation is expected to slow as the AI-driven export boom faces scrutiny and U.S.-China trade tensions persist. For global investors, a stronger yuan raises the local-currency return on Chinese assets while squeezing exporters' competitiveness, a trade-off that will shape capital allocation decisions into 2027.

This article is for informational purposes only and does not constitute investment advice.