RMB Shows Resilience: Yuan to Trade Firm with Two-Way Volatility Against US Dollar

On September 2, the renminbi slipped slightly against the US dollar. Over a longer horizon, however, the RMB has strengthened overall this year. Experts noted that the yuan's gains are not driven by a single factor, but by the combined effect of a pullback in the dollar, fast-growing domestic exports, the release of corporate FX conversion demand, and improved exchange rate expectations. Looking ahead, the market remains relatively positive on a moderate RMB appreciation, with "firm trading and two-way volatility" likely to be the main theme.

RMB exchange rate remains basically stable

On September 2, the onshore RMB closed essentially flat against the dollar. Wind data showed that as of 16:30, the onshore yuan closed at 6.7219 per dollar, down 1 basis point from the previous session, with an intraday high of 6.7212. The offshore yuan traded at 6.7233, down 10 basis points, with an intraday high of 6.7215.

This year, the RMB has broadly appreciated against the dollar. Wind data showed that as of September 1, the onshore yuan climbed from 6.9890 at the end of last year to 6.7218, up 3.82% cumulatively, while the offshore yuan rose from 6.9755 to 6.7223, a gain of 2,532 basis points, or 3.63%.

The RMB has also held firm against a basket of currencies. The latest data from the China Foreign Exchange Trade System (CFETS) showed that on August 31, the CFETS RMB index stood at 101.87, up 3.96% from the end of last year, while the BIS and SDR currency basket RMB indexes stood at 109.15 and 96.67, up 4.28% and 4.27% respectively.

"Since 2026, the RMB has strengthened overall against a basket of currencies, with enhanced exchange rate resilience, reflecting improved market confidence in China's economic fundamentals and the attractiveness of RMB assets," according to the H1 2026 RMB exchange rate report by the National Institution for Finance & Development (NIFD).

Recently, the central parity rate of the RMB against the dollar has remained generally stable, with the pace of upward adjustment slowing. Data from the CFETS, authorized by the People's Bank of China (PBOC), showed that in August the central parity rate was cumulatively raised by 66 basis points. On September 2, the central parity rate was set at 6.7829, 20 basis points weaker than the previous trading day.

"The cumulative appreciation of the central parity over the past three months has slowed, and policy may continue to favor smoothing the pace of appreciation," said Li Liuyang, chief FX analyst at CICC Research.

Combined internal and external drivers

Experts said a weaker dollar, the release of FX conversion demand, and improved risk appetite are the main drivers behind the RMB's appreciation in this round.

On the external front, concerns over dollar credibility may cap the rebound of the dollar index. "The continued rise in long-end US Treasury yields, the US Treasury's buybacks that suppress the long end, and joint US-Japan intervention to cushion the Japanese bond market all point to market concerns over dollar credibility, which may limit the dollar index's rebound—creating favorable external conditions for the RMB's appreciation," said Yang Fan, chief macro and policy analyst at CITIC Securities.

Export resilience and corporate FX conversion have jointly improved the supply and demand balance in the FX market. Guan Tao, chief economist at Huafu Securities, noted that this year, against the backdrop of a sharp rise in global AI capital spending, China's imports and exports both achieved double-digit growth, with external demand stronger than before. The NIFD report showed that China's current account surplus remains at an elevated level, providing appreciation support for the RMB.

"On one hand, the external environment for the RMB remains relatively favorable, appreciation expectations may persist, and corporate FX conversion demand is expected to keep being released. On the other hand, exports remain resilient, and the FX income accumulated earlier may gradually translate into conversion demand—potential conversion supply in September may remain ample," Li Liuyang said.

Yuan Haixia, dean of the China Chengxin International Research Institute, said the continued trade surplus generates new FX income, while corporates' rising willingness to convert pushes both current income and previously retained FX into the spot market—together forming the main domestic support for the RMB's strength.

Policy adjustment has effectively stabilized expectations and smoothed volatility. Li Liuyang said the policy side may continue to anchor FX expectations by smoothing the appreciation pace of the central parity rate, keeping the RMB on a path of moderate appreciation.

Two-way volatility expected to continue

Experts said that looking forward, the factors affecting the RMB exchange rate are diverse, and the currency is expected to keep fluctuating in both directions.

"The RMB is likely to sustain a mild appreciation supported by fundamentals, but two-way volatility will increase markedly amid the external tightening environment and geopolitical disruptions," Yuan Haixia analyzed. "Domestically, export resilience and the trade surplus still provide fundamental support, and recovering corporate conversion willingness may offer a temporary boost. Externally, rising Fed rate-hike expectations and the deepening inversion of China-US interest rate differentials will be the core external variables constraining the appreciation space."

The NIFD report projected that the RMB against the dollar will remain in a two-way fluctuation pattern with limited further room for appreciation, but that the RMB faces no obvious depreciation pressure, underpinned by export resilience and the current account surplus.

PBOC Deputy Governor Zou Lan said recently that the central bank will closely monitor changes in the international economic and financial landscape, implement an appropriately loose monetary policy, and create a suitable monetary and financial environment for the economy to keep improving. He added that the PBOC will uphold the decisive role of the market in exchange rate formation, leverage the exchange rate's function as an automatic stabilizer for the macroeconomy and the balance of payments, and keep the RMB basically stable at a reasonable and balanced level.

Moreover, amid uncertainty over the RMB's trajectory, Yuan Haixia advised companies to prepare contingency plans in advance to avoid larger FX losses. For instance, firms can build a baseline hedging framework for exchange rate risk management, flexibly adjust the hedging pace across different risk scenarios, and set hedging ratios based on FX exposure certainty, profit sensitivity, and hedging costs.

(Source: China Securities Journal)