Offshore Yuan Steady

The offshore yuan steadied around 6.89 per dollar on Thursday, following a decline in the previous session as fading expectations of an imminent rate cut by the People’s Bank of China lent support to the currency. Beijing's rate markets signaled a reduced likelihood of further monetary easing, as recent data suggest a stronger-than-expected start to 2026, alongside a modest rebound in consumer prices and easing factory-gate deflation. At the same time, a sharp surge in global oil prices, driven by escalating conflict in the Middle East, is potentially limiting the scope for aggressive monetary loosening. Investors are adjusting their outlook, with markets now leaning toward a steady or slightly firmer policy stance from the central bank. Attention is now turning to Friday’s announcement of China’s benchmark loan prime rates, where the one-year and five-year tenors are widely expected to remain unchanged at 3.0% and 3.5%, respectively.

The offshore yuan slipped to around 6.88 per dollar on Wednesday, snapping a two-session winning streak, as a strengthening greenback weighed on the currency. The US dollar gained as the Federal Reserve held its federal funds rate unchanged, while signaling a single rate reduction this year and a further cut in 2027, consistent with its December outlook. Still, the yuan remained supported by China’s lower exposure to oil shocks, resilient exports, and exporters’ continued dollar selling. Recent data also showed that China’s factory output growth accelerated in January and February, while retail sales rebounded. Meanwhile, US President Donlad Trump asked Xi Jinping to postpone their meeting by about a month so he could remain in Washington to oversee the Middle East conflict, though the delay may be manageable for Beijing as officials from both sides met in Paris in recent days to continue trade talks.

The offshore yuan edged up to around 6.901 per USD on Monday, halting losses from the previous week as investors weighed fresh geopolitical and trade developments, while China’s key economic data came in strong at the start of the year. Data showed industrial output, retail sales, and fixed-asset investment all surpassed expectations, pointing to firmer momentum early in the year. However, challenges persisted as the property sector remained under pressure and unemployment ticked higher. Officials also cautioned that rising geopolitical tensions could cloud the outlook, particularly as the expanding Middle East conflict threatens global growth and trade. In the latest update, President Trump ordered strikes on Iranian military assets on Kharg Island and warned of further attacks on crude facilities. He also signaled a potential delay to his Beijing summit unless China helps reopen the Strait of Hormuz. Still, the numbers suggest that China may be less exposed to the Hormuz disruption.