Insights 
VT 
Key Points:
- Offshore yuan (USDCNH) peaked at 7.23508 before settling at 7.21636, its highest since mid-March.
- Analysts cite carry trade unwind and renewed hopes of U.S.–China trade talks as primary catalysts.
The Chinese yuan strengthened sharply against the dollar on Tuesday, reaching its highest level since March 12, as traders fled U.S. assets in favour of Asian currencies. Offshore yuan (USDCNH) jumped to 7.23508 before easing to 7.21636, while the onshore yuan (USDCNY) touched 7.2203, gaining 0.69% intraday.
The rally reflects a broader rotation into Asian markets. Hong Kong’s dollar (USDHKD), Taiwan’s dollar (USDTWD), and the Korean won all saw gains as dollar positioning unwound rapidly. The shift comes on the back of diminishing returns from carry trades, where traders had previously borrowed low-yielding Asian currencies to fund long-dollar positions. As the greenback weakens, this strategy has lost its appeal.
Meanwhile, the PBOC’s daily midpoint was set at 7.2008—only marginally stronger than the previous fixing—signalling Beijing’s cautious approach. Standard Chartered’s Becky Liu said the fixing shows reluctance to allow rapid appreciation, especially with Chinese exporters facing margin pressure and listed firms preparing dividend payments in foreign currency.
President Trump’s Sunday statement that the U.S. is negotiating trade terms with several countries, including China, added to the risk-on momentum. China responded by saying it is evaluating the U.S. offer for talks, though it warned against “extortion and coercion.”
Technical Analysis
The USDCNH-ECN 15-minute chart shows a strong rebound from the session low of 7.18444, with price action surging to a high of 7.23508 before retreating slightly and closing around 7.21636. This movement marks a notable short-term bullish breakout following a lengthy period of sideways consolidation. The sharp rise suggests renewed buying interest, potentially triggered by broader dollar strength or yuan weakness.
Picture: Yuan weakens as USDCNH spikes above 7.23 before retracing, seen on the VT Markets app
From a technical perspective, the moving averages (5, 10, and 30-period) are aligned in a bullish configuration, confirming upward momentum. The price is currently testing the 10-period moving average as a dynamic support zone, which may determine the next directional move. The MACD indicator also supports the recent bullish sentiment, with a positive crossover and a strong upward histogram during the rally. However, the diminishing size of the green MACD bars hints at weakening momentum, suggesting that the rally may be cooling, at least temporarily.
Immediate support lies near the 7.2100 area, with more substantial backing around 7.1840, the prior low. On the upside, a clean break and hold above 7.2200 could revive bullish momentum and set the stage for a retest of 7.2350 and beyond. For now, the pullback appears to be healthy profit-taking within an overall bullish structure.
Analysts remain split on how far the yuan can run. Christopher Wong of OCBC Bank highlighted that hopes of a de-escalation in tariffs have strengthened the regional rally, but Beijing may still want to keep the yuan from appreciating too fast to preserve trade competitiveness.
Cautious Forecast
The yuan may continue to strengthen modestly in the near term if dollar weakness persists and trade rhetoric remains conciliatory. However, any shift in tone or a firmer PBOC stance could stall the rally. Traders should watch the 7.2350 level as a potential top unless broader macro conditions shift.
