China’s yuan briefly rose to its strongest level in over a year on Wednesday after Beijing unveiled a slate of stimulus measures to shore up the slowing economy yesterday.

The Chinese offshore yuan strengthened briefly to 6.9946 per dollar, the strongest since May 2023. China’s onshore yuan is currently trading at 7.0319 against the greenback, also holding at the strongest levels since last May.

“We think the weak growth and low inflation environment in China should put some pressure on RMB going forward,” said Edmund Goh, head of China fixed income at abrdn. He noted that U.S. interest rates will likely still be higher than that in China over the next six to 12 months. 

The monetary transmission channel is “clogged by property overhang” on banks’ balance sheets, which has led to a “crisis” in consumer confidence, Ben Emons, founder of Fed Watch Advisors, wrote in a note early Wednesday. 

The PBOC uses a variety of rates to manage monetary policy.

A rapid strengthening of the Chinese Yuan may add further deflationary pressure to China’s exports by propping up the domestic stock market, which correlates with U.S. and international stocks, added Emons.  

BNP Paribas expects the USD/RMB to be capped by expectations of more fiscal support, corporate hedging needs and better risk appetite.

In a rare high-level press conference on Tuesday, the People’s Bank of China Gov. Pan Gongsheng announced that the central bank will cut the amount of cash banks need to have on hand, known as the reserve requirement ratio, or RRR, by 50 basis points. He also said the PBOC would cut the 7-day repo rate by 0.2 percentage points.

—CNBC’s Evelyn Cheng contributed to this story.

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