The yuan has barely budged this week despite growing US threats of sanctions over China’s ties to Iran, giving some strategists more confidence in their bullish calls on the currency.
The onshore yuan traded between 6.7188 and 6.7264 per dollar this week — the tightest range since early 2016 — while holding near its strongest level since 2023. It also gained 0.3% against a basket of trading-partner currencies, based on a Bloomberg replica of the CFETS RMB Index.
Month-end corporate dollar selling was met by state bank buying to curb yuan strength, keeping trading light and range-bound, said traders who asked not to be named as they aren’t allowed to speak publicly. Options suggest the calm may continue, with the offshore yuan’s implied volatility near its lowest since 2015.
The yuan’s resilience suggests it is weathering Washington’s threats of economic punishment against nations doing business with Iran, a supplier of oil to China. Analysts see stronger forces supporting the currency, including robust Chinese exports, the People’s Bank of China’s comfort with gradual appreciation, and broader dollar weakness driven by US fiscal concerns and Treasury buyback risks.
“Dollar-yuan wouldn’t be here if there’s some anxiety” over prospective US sanctions against China, said Christopher Wong, strategist at Oversea-Chinese Banking Corp. “The immediate FX impact should remain limited so long as measures stop short of directly targeting major Chinese financial institutions.”
Wong added that market pricing is anchored by broader dollar movements and anticipation surrounding Federal Reserve Chairman Kevin Warsh’s speech on Friday. “Jackson Hole is overshadowing the risk,” he said.
Beyond the blacklist of Chinese enterprises announced recently, traders are waiting for clarity on US Treasury Secretary Scott Bessent’s warning on Monday that a major announcement sanctioning a financial institution will come by the end of the week. On the trade front, the US is set to impose a 7.5% tariff on Chinese goods over allegations of excess manufacturing capacity, people familiar with the matter said this week.
The last US sanctions targeting a Chinese bank occurred in 2017, when Bank of Dandong was severed from the US financial system over deals with North Korea, and in 2012, when Bank of Kunlun was sanctioned for purchasing Iranian oil. The yuan ended both those years weaker versus the dollar. The US has refrained from similar measures against major Chinese lenders in the past as it sought to avoid sending shockwaves across the global financial system despite warnings from Washington.
That historical precedent has kept some market participants cautious. Spectra Markets, for instance recommends hedging against yuan downside risks, citing potential sanction fallout or even a cancellation of the planned summit between US President Donald Trump and his Chinese counterpart Xi Jinping.
The US Treasury unveiled measures Monday aimed at cutting Iran’s remaining financial lifelines, sweeping up businesses in China and Hong Kong while so far stopping short of targeting major Chinese financial institutions. Beijing has threatened to retaliate and signaled it won’t back away from its ties with Iran.
Most other analysts remain optimistic about the yuan’s path with the currency already up nearly 4% this year to around 6.72 per dollar. Eugenia Victorino, head of Asia strategy of SEB, reaffirmed her forecast for the onshore yuan to gradually rally to 6.60 per dollar by year-end, close to Standard Chartered Bank’s 6.65 target.
Eddie Cheung, senior emerging markets strategist, Credit Agricole CIB, also sees room for further yuan gains. “China’s massive external surplus driving FX settlement, positive seasonality into year-end and currency policy signals suggest a still supportive attitude toward gradual yuan gains,” he said. “Externally, the weakening in the dollar will also help.”
With assistance from Ran Li.
This article was generated from an automated news agency feed without modifications to text.
