Goldman Sachs says yuan defies dollar strength as USD/CNY holds near 6.80

The Chinese yuan has held near 6.80 per dollar even as the greenback strengthened, with Goldman Sachs attributing the resilience to structural changes in China's economy rather than short-term market dynamics.

"Resilient CNY reflects the increasing importance of domestic drivers, even as global markets continue to favor the US dollar," Goldman Sachs said in a note published Wednesday.

The yuan has defied headwinds that have pressured other Asian currencies, supported by Beijing's push to expand cross-border use of the renminbi, steady capital account reforms and continued policy support. China's weaker domestic growth has kept interest rates low, limiting the yuan's yield advantage relative to the dollar. The last time USD/CNY traded consistently above 7.0 was in late 2023, when the dollar index surged past 106 and China's post-Covid recovery faltered — a period that saw the yuan weaken more than 5 percent over three months before the PBoC stepped in with stronger daily fixings.

While US monetary policy is likely to remain the dominant short-term driver of USD/CNY, Goldman Sachs expects China's structural reforms and continued internationalization of the renminbi to help keep the yuan relatively resilient despite broader dollar strength. The People's Bank of China has maintained the yuan's daily fixing at relatively firm levels, signaling its preference for stability.

The dollar index has climbed this year as the Federal Reserve holds its benchmark rate at 5.25 percent to 5.5 percent, with markets pricing less than two quarter-point cuts through year-end. That backdrop has typically weighed on emerging-market currencies, yet the yuan has held its ground better than most. The offshore yuan traded near 6.82 per dollar Thursday, while the onshore rate held around 6.80, a narrow spread that suggests limited speculative pressure.

China's push to internationalize the renminbi has gained traction, with cross-border settlement using the currency rising to roughly 50 percent of China's total goods trade, according to PBoC data. The central bank has also expanded bilateral swap lines with more than 30 countries and promoted yuan-denominated oil contracts, steps that reduce reliance on the dollar in trade settlement. These structural shifts create a natural bid for the currency that cushions it during periods of dollar strength.

The PBoC acknowledged an uneven economic picture in its latest quarterly policy report, vowing a flexible approach to monetary tools. The weighted-average reserve requirement ratio stands at about 7.0 percent after a series of cuts, and markets expect further easing if growth momentum slows. Any additional stimulus would likely keep Chinese bond yields low, narrowing the rate differential with the US and capping the yuan's upside in the near term.

For global investors, the yuan's resilience carries implications beyond the currency market. A stable renminbi reduces hedging costs for foreign holders of Chinese bonds and equities, supporting capital inflows into the world's second-largest bond market. Foreign holdings of onshore Chinese bonds have stabilized near 4.0 trillion yuan after a prolonged selloff in 2022 and 2023, and further internationalization could accelerate that recovery.

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