Offshore Yuan Remains at Over 3-Year High

The offshore yuan traded around 6.70 per dollar on Wednesday, remaining at its strongest level since January 2023 as investors increasingly turn to the currency as a funding option for carry trades. The recent surge in the yen has prompted investors to look for alternatives such as the yuan, given China's relatively low interest rates and currency stability. While major central banks face pressure to keep rates elevated or tighten policy further, China's comparatively low borrowing costs allow investors to finance higher-yielding assets at a lower cost. On the economic front, annual consumer inflation rose to 0.8% in August, matching forecasts and accelerating from a six-month low of 0.5% in July. Producer price inflation also picked up to 3.8% from a three-month low of 3.5%, exceeding market expectations of 3.7%. The increase in price pressures was driven mainly by higher energy costs amid ongoing tensions in the Middle East.

The offshore yuan held steady around 6.70 per dollar on Tuesday, remaining near its strongest level since January 2023, as strong trade data reinforced optimism over China’s external demand. Exports climbed 25.0% year-on-year to USD 401.44 billion in August 2026, accelerating from 23.9% growth in July, while imports surged 28.2% year-on-year to USD 282.4 billion, picking up from 27.5% in July and extending double-digit growth for an eighth straight month. As a result, China’s trade surplus widened to USD 119.09 billion in August from USD 101.09 billion a year earlier, matching forecasts. The robust trade figures came as Washington stepped up pressure on Beijing to address trade imbalances ahead of a planned Trump-Xi meeting, while the two countries remain under a fragile tariff truce set to expire in November. Trade tensions between Beijing and Brussels are also mounting ahead of an October deadline to address imbalances, which EU leaders increasingly view as a strategic concern.

The offshore yuan edged lower to around 6.71 per dollar on Monday, retreating from a more than three-year high reached in the previous session as the People’s Bank of China continued to signal a more measured approach to the currency’s appreciation. The central bank set its daily midpoint at 6.7795 per dollar, 709 pips weaker than Reuters’ estimate, marking the largest deviation to the weak side since a record in February 2025. Chinese banks have also raised dollar deposit rates and increased purchases of US Treasuries in recent months, moves that could help temper yuan gains amid rising US yields. Meanwhile, China is injecting CNY 300 billion ($45 billion) into its largest banks and insurers as part of the country’s biggest financial-sector recapitalization in nearly two decades, aimed at strengthening balance sheets and supporting credit growth as the economy slows. Attention now turned to trade and inflation data due later this week.