Yuan Rally Builds as Hedging Costs Fall

The offshore yuan rose to around 6.88 per dollar on Friday, trimming gains from the previous session as market sentiment improved on growing hopes for the reopening of the Strait of Hormuz. Iran and Oman are said to be developing a protocol to “monitor transit” through the strategic waterway, a move aimed at easing regional tensions. Elsewhere, countries such as India and the Philippines are actively negotiating with Tehran to ensure the safe passage of vessels, while also forming small diplomatic circles and exploring barter-style agreements. Meanwhile, China and Pakistan are advocating for their own multi-point diplomatic plan, as Iran maintains tight control over the shipping lane. Domestically, RatingDog data showed China’s composite PMI fell to 51.5 in March from 55.4 in February 2026, as both manufacturing (50.8 vs 52.1) and services (52.1 vs 56.7) sectors slowed. Over the week, the yuan is poised for a weekly gain, breaking a four-week losing streak.

The offshore yuan weakened to around 6.89 per dollar, ending a three-day winning streak as the greenback gained strength amid mounting uncertainties over a possible easing of the Middle East conflict. The US dollar rose as investors pared back expectations for Federal Reserve rate cuts, amid concerns that a surge in oil prices driven by the conflict could stoke rising inflation. During his speech, Trump said the war in Iran was “very close” to completion and likely to meet its objectives in the coming weeks, while warning that military operations could intensify. Meanwhile, the PBoC drained CNY 890 billion through short-term operations and absorbed another CNY 250 billion via longer-term tools, reversing months of liquidity support after the economy’s deepest slowdown since reopening from Covid lockdowns in 2022. With growth rebounding and oil prices elevated by the Iran war, the central bank appears focused on curbing inflation while gradually steering China out of record deflation.

The offshore yuan strengthened to around 6.87 per dollar on Wednesday, marking its third straight session of gains and reaching a near two-week high, as optimism over a potential resolution to the Middle East conflict dented demand for the greenback. President Trump said US forces would end operations in Iran within two to three weeks, while adding that any agreement was “irrelevant” to Washington’s timeline. Iranian President Masoud Pezeshkian stated that Tehran had the “necessary will” to end the conflict, provided that safeguards are in place to prevent renewed hostilities. The yuan gained further support as BOC Hong Kong works with regulators to upgrade digital wallets, following China’s move to allow interest on the currency, a step that could boost offshore adoption. Meanwhile, a private survey showed that the manufacturing PMI fell to 50.8 in March 2026, from 52.1 in February. In contrast, official data indicated that the manufacturing PMI rebounded to a one-year high of 50.4.