Chinese Yuan Hits 3-1/2-year High

The Chinese Yuan touched 6.71 against the USD, the highest since February 2023. Over the past 4 weeks, US Dollar Chinese Yuan lost 0.49%, and in the last 12 months, it decreased 5.75%.

The offshore yuan strengthened to around 6.70 per dollar on Friday, reaching its strongest level since early January 2023 as a fresh batch of PMI data reinforced expectations that China’s economic recovery is gradually gaining traction. A private survey showed the Composite PMI rising to 52.1 in August from 50.8 in July, as expansion strengthened in both the manufacturing (51.5 vs 50.9) and services (51.4 vs 50.4) sectors. The upbeat readings followed official data also showing that the composite PMI edged up to 49.5 in August from 49.3 in July, as manufacturing activity (49.8 vs 49.2) improved while the non-manufacturing PMI was steady at 49. Attention is now turning to next week's key economic releases, especially trade and inflation figures. Externally, the yuan also benefited from a US dollar weakness after Federal Reserve Governor Christopher Waller favored holding rates steady if inflation pressures continue to ease, prompting markets to pare bets on a Fed rate hike this month.

The offshore yuan edged lower to around 6.72 per dollar on Tuesday, reversing gains from the previous session as the People's Bank of China continued to temper the currency’s appreciation. The central bank set the daily midpoint at 6.7809 per dollar, 640 pips weaker than the Reuters estimate and near the largest downside deviation recorded since February. The move extended a recent pattern of fixing the yuan below market expectations, signaling policymakers’ intent to curb further strength after the currency’s roughly 4% year-to-date rally. On the domestic front, economic data offered fresh signs of resilience in the manufacturing sector. A private survey showed that the manufacturing PMI rose to 51.5 in August from a four-month low of 50.9 in July, beating forecasts of 51.0. The reading followed official data showing manufacturing activity improving to 49.8 from 49.2, also exceeding expectations of 49.7.