A record trade surplus is pushing the currency higher, but weak spending, capital outflows, and official guidance are putting a ceiling on gains.
Chinese authorities are curbing the yuan’s further appreciation, which has been underway for nearly two years. Currency market participants expect the Chinese currency to rise only moderately by the end of 2026, as Beijing seeks to preserve exporters’ competitiveness amid weak domestic demand.
As informed by Reuters
Over the past 20 months, the yuan has gained nearly 9% against the US dollar and reached its highest level in three and a half years. At the same time, China’s trading partners are increasingly arguing that the Chinese currency remains undervalued.
Traders cite lower trading volumes in the foreign exchange market, reduced dollar sales by exporters, and the daily exchange-rate guidance set by the People’s Bank of China as signs of official intervention. This policy is linked to slowing lending, household spending, and overall economic growth.
I do not see China allowing the renminbi to strengthen significantly against the US dollar or any other currency.
– Peter Berezin, Chief Global Strategist at BCA Research
Peter Berezin noted that lending and consumer spending indicators are deteriorating, and such a trend is inconsistent with a substantial strengthening of the national currency.
The median forecast of twelve international investment banks, including Goldman Sachs and Morgan Stanley, projects an exchange rate of around 6.68 yuan per dollar at year-end. On August 31, the rate stood at approximately 6.72 yuan per dollar.
China’s record trade surplus, which exceeded $1 trillion, supported the yuan’s appreciation through exporters’ foreign-currency inflows. At the same time, valuation models that take purchasing power parity and terms of trade into account indicate that the Chinese currency remains undervalued.
German Chancellor Friedrich Merz, who is under pressure from German industry because of competition from China, had previously criticized Beijing for keeping the yuan artificially weak.
The renminbi is indeed undervalued. However, given the need to stabilize domestic economic growth and employment, its exchange rate will not be determined entirely freely in the short term by factors such as the trade surplus. Even if there is room for further appreciation by the end of the year, it will not be significant, especially because of capital outflows driven by low interest rates.
– Chaoping Zhu, Global Markets Strategist at J.P. Morgan Asset Management in Shanghai
In February, the International Monetary Fund estimated that the yuan could be undervalued by as much as 20%. China disagreed with the methodology used for these calculations.
A stable exchange rate is important for Chinese exporters because it helps preserve the value of their foreign-currency revenues after conversion into yuan.
In March, People’s Bank of China Governor Pan Gongsheng said that the country does not seek to gain a trade advantage through currency devaluation, while emphasizing the market’s decisive role in setting the yuan’s exchange rate.
How China controls the yuan’s exchange rate
China regulates the foreign exchange market through daily trading-band guidance and informal signals to banks and market participants. Since November 2025, the People’s Bank of China has set the central parity rate weaker than the market expects.
In August, the gap between market forecasts and the regulator’s guidance became more noticeable. The central parity rate remained relatively stable, although the weakening of the US dollar should have supported further yuan appreciation.
HSBC analysts believe this policy indicates that authorities want to maintain a “balanced” yuan exchange rate. Their forecast also calls for a rate of 6.72 yuan per dollar at year-end.
Chinese state-owned banks have repeatedly entered the domestic market to buy dollars. This has reinforced expectations that authorities are seeking to slow the pace of the Chinese currency’s rise.
The average daily trading volume in the domestic spot foreign exchange market fell to $31.2 billion in August. By comparison, it stood at $42.2 billion in July and $39.9 billion a year earlier.
Also in July, the currency conversion ratio, which reflects the willingness of households and companies to exchange dollars for yuan, fell to its lowest level in nearly a year and a half.
No sharp yuan appreciation expected
In the longer term, analysts allow for further strengthening of the Chinese currency. Goldman Sachs forecasts that the exchange rate could reach 6.4 yuan per dollar within 12 months.
However, ultra-low returns on Chinese assets, reflecting weak domestic confidence and sluggish consumption, are fueling capital outflows. New restrictions on overseas investment have become an additional restraining factor.
A large trade surplus would normally support renminbi appreciation and reduce the need to restrict overseas investment. However, the latest tightening of the rules suggests that the trade surplus does not tell the whole story. The People’s Bank of China may allow moderate currency appreciation if exports continue to exceed expectations, but a sharp increase beyond fundamentally justified levels appears unlikely.
– Robin Xing, Morgan Stanley’s Chief China Economist
Robin Xing also noted that the regulator is taking weak domestic demand and price trends into account. In addition, a slowdown in the dollar’s decline amid rising US bond yields could help keep the yuan near current levels.
We continue to expect an exchange rate of 6.72 yuan per dollar at the end of 2026. The key factor will be the strength of the dollar: the yuan will likely move in line with the global cycle of the US currency – appreciating against the dollar when the dollar weakens and depreciating when the dollar rises.
– Larry Hu, Macquarie’s Chief China Economist
Thus, Chinese authorities are likely to permit only limited yuan appreciation as they seek to balance the record export surplus, the state of the domestic economy, and the risks of capital outflows.
