LIVE MARKETS-The yuan's stealth rally could go either way

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THE YUAN'S STEALTH RALLY COULD GO EITHER WAY

The Chinese yuan CNY=CFXS is on a bit of a stealth rally, and is set to have gained for its seventh straight week against the dollar.

It recently strengthened past 7 per dollar for the first time since 2023, but analysts are split on where the currency goes from here.

Here's Barclays:

"We see growing resistance from China's authorities given the reliance on exports to support growth and limited benefit of FX strength to Chinese imports."

"We don't believe a stronger currency will be beneficial for China's economy and think it could worsen deflation pressures at a time when China is trying, via anti-involution, to escape from a downward price spiral."

But, Wei He, China economist at Gavekal Dragonomics, believes the Chinese central bank may become more hands-off, preferring to tolerate more appreciation of the currency against the dollar.

"Policymakers' growth expectations for 2026 are a bit more optimistic as the trade truce with the U.S. seems durable," Wei says.

"If growth is indeed less of a problem and depreciation pressures have waned, the PBOC will likely intervene less in the currency markets, as it has in the past."

"On balance, the shift to stronger market expectations for renminbi appreciation means that the PBOC can step back from its recent efforts to prevent currency depreciation."

"As a result, in 2026 the renminbi should be both stronger and more volatile against the dollar than it was in 2025, and will respond more directly to moves in the broad dollar index," Wei concludes.

(Samuel Indyk)

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