Insights 
VT 
Key Points
- USDCNH steadied around 6.97, the strongest level since May 2023.
- The yuan rose roughly 5% in 2025, marking its largest annual gain since 2020.
The offshore yuan steadied around 6.97 per dollar on Friday, trading at its strongest level since May 2023. The move came despite softer guidance from China’s central bank, as exporter dollar selling continued to underpin the currency.
USDCNH last traded near 6.973, reflecting steady demand for the yuan rather than speculative inflows.
The yuan also capped a strong year, rising roughly 5% in 2025. This marked its largest annual gain since 2020 and snapped a three-year losing streak.
The scale of the advance has shifted market behaviour, with exporters accelerating dollar conversions rather than holding foreign currency.
Exporter Flows Drive Persistent Support
Ongoing exporter activity has played a central role in the yuan’s strength. Companies have continued converting foreign currency receipts into yuan, driven by payment schedules and administrative requirements.
Traders said these flows likely carried into early January, providing a steady bid even as official guidance turned less supportive.
This flow-based demand has proven resilient. It has absorbed attempts by authorities to slow the pace of appreciation, keeping the currency firm despite repeated signals aimed at tempering gains.
Central Bank Guidance Fails to Reverse Trend
The rapid advance in the yuan has prompted China’s central bank to act. Policymakers have leaned on softer guidance rates and verbal warnings in state media to discourage one-way bets.
These measures aimed to prevent the currency from overshooting levels seen as uncomfortable for exporters.
So far, these efforts have slowed momentum rather than changed direction. Price action suggests the market continues to prioritise underlying demand over guidance, especially while exporter selling remains active.
Improved Data Lifts Confidence in China
The yuan’s strength has also drawn support from signs of improving confidence in the Chinese economy. Data showed manufacturing activity performed better than expected in December, easing concerns about near-term growth momentum.
This improvement has reduced pressure for aggressive policy easing and helped stabilise sentiment around Chinese assets. As a result, currency traders have grown more comfortable holding yuan exposure rather than positioning defensively.
Technical Analysis
The offshore yuan continues its bullish streak against the dollar, with USDCNH tumbling below the psychological 7.00 level—marking its lowest point in months.
The pair has maintained a persistent downtrend since the 7.22384 peak in August, with all short- and mid-term moving averages pointing sharply lower.
Momentum remains firmly bearish as the MACD histogram deepens in negative territory.
This move suggests strong confidence in the yuan amid sustained dollar weakness and supportive domestic flows.
While the pair may find temporary relief near 6.97, the absence of bullish divergence in momentum signals further downside risk unless a reversal pattern emerges.
Cautious Outlook as Policy Friction Builds
The yuan may remain supported near current levels as long as exporter flows persist and the dollar stays soft. However, increased pushback from policymakers could limit the pace of further gains.
In the near term, USDCNH may consolidate around the 6.95 to 7.00 range, with direction shaped by flow dynamics and any escalation in guidance rather than a sharp shift in fundamentals.
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