Beijing favors gradual yuan gains, currency strategists say

The yuan reached a four-year high against its trading-partner basket following a defense of exchange-rate policy by the People’s Bank of China.

A market-data replica of the CFETS RMB Index registered 103.9 on October 9, a reading last seen in April 2022, with gains exceeding 5% since the year began. That measure tracks performance against a currency basket rather than the dollar alone.

PBOC fixing reinforces yuan strength

The People’s Bank of China (PBOC) also strengthened its daily reference rate to a setting not matched since 2023. The fixing establishes the center of the onshore currency’s permitted trading band, which extends 2% in either direction.

The yuan was also trading close to its strongest dollar level in several years and above euro levels seen more than a year earlier. Those bilateral comparisons accompany the basket’s advance, although they measure the currency against individual counterparts rather than trading partners collectively.

The stronger fixing followed an October 8 policy document defending China’s exchange-rate approach. The central bank disputed allegations that the yuan was artificially cheap and opposed treating appreciation as a remedy for global economic imbalances.

Trade disputes frame currency debate

The PBOC argued that exchange-rate changes now exert less influence on Chinese trade than they previously did. It pointed to earlier periods of currency appreciation that, in its assessment, had not undermined trade performance.

That position separates two issues: whether the yuan can strengthen and whether its exchange rate explains China’s trade imbalance. The central bank’s document challenged the latter argument without preventing a stronger reference rate the following day.

The policy defense comes as China’s expanding trade surplus attracts international scrutiny. It also coincided with a two-day round of Beijing negotiations involving EU Trade Commissioner Maros Sefcovic and Chinese Commerce Minister Wang Wentao, although the document did not refer to their discussions.

The overlap does not establish that the talks prompted the currency statement. Nor does the supplied material establish whether exchange-rate policy featured in the negotiations, leaving the relationship between the diplomatic discussions and the PBOC’s intervention uncertain.

Strategists focus on appreciation’s pace

Khoon Goh, head of Asia research at Australia & New Zealand Banking Group, interpreted the statement as compatible with additional gains, even while the PBOC disputes undervaluation claims. He expects attention to stay on the daily reference rate: “Pay attention to what they do, rather than what they say,” he said.

Christopher Wong, strategist at Oversea-Chinese Banking Corp, similarly distinguished gradual appreciation from an abrupt revaluation. “Our sense is that Beijing is still pursuing a gradual and measured path of yuan appreciation, rather than a one-off adjustment,” he said.

If subsequent fixings continue to strengthen, that sequence would support the strategists’ interpretation that officials accept appreciation while managing its speed. If the reference rate stops strengthening, the argument for continued managed gains would have less support from the daily policy signal; neither strategist’s assessment amounts to a PBOC commitment.