Offshore Yuan Strongest Since 2023

The offshore yuan strengthened to around 6.86 per dollar on Wednesday, hitting its strongest level since April 2023, as a weakening greenback supported the currency. The US dollar declined amid uncertainty over US tariffs and fiscal policies, compounded by investor caution amid US President Donald Trump’s State of the Union address. The yuan gained further support as Indonesia began marketing offshore yuan-denominated bonds, testing global investor appetite amid concerns over the nation’s fiscal health. This is Indonesia’s second offshore yuan issuance, following its October debut, reflecting its strategy to take advantage of China’s low borrowing costs. On the monetary policy front, the People's Bank of China recently held its key rates unchanged for the ninth consecutive month, with the one-year and five-year loan prime rates at 3.0% and 3.5%, respectively.

The offshore yuan was largely unchanged around 6.89 per USD on Tuesday, holding near thirty-four month highs, as the People's Bank of China kept rates unchanged for the ninth straight month, while onshore traders returned from a week-long holiday. The central bank held its one-year and five-year loan prime rates at 3.0% and 3.5%, respectively, indicating that authorities are in no rush to implement broad monetary easing after recent sector-targeted cuts. The decision also reflects a careful balance between supporting growth and maintaining financial stability. Meanwhile, mainland markets reopened after the holidays to a cautious mood, as US President Donald Trump announced plans to raise a temporary 10% tariff on imports to 15%, in response to a Supreme Court ruling. Still, sentiment was aided by renewed dollar weakness, signs of strong forex inflows, following China’s record current account surplus in Q4, and expectations that Trump’s new tax policies could boost Chinese exports.

The offshore yuan strengthened to around 6.89 per USD on Monday, moving toward thirty-four month highs, as the US dollar weakened amid renewed trade policy concerns. The US Supreme Court struck down President Donald Trump’s sweeping tariffs, prompting him to first reinstate a 10% rate before lifting it to 15%, a move that could reshape trade terms for key partners. Senior US officials now urge partners to honor previous commitments, while Trump plans a visit to Beijing to ensure continuity under the one-year trade truce. Meanwhile, China said it is conducting a “full assessment” of the court’s tariff decision and urged Washington to remove related unilateral measures. Beijing also signaled it is closely monitoring alternative US actions, including trade investigations, and pledged to safeguard its economic interests. The yuan is likely to see volatility when mainland markets reopen on Tuesday after a week-long holiday, while investors await the PBOC's upcoming policy decision.