RMB Breaks Through 6.7 Against the Dollar: Multiple Factors Offer Strong Support, with a 'Rise First, Then Stabilize' Path Seen for the Year

On September 18, both the onshore and offshore yuan broke through the 6.7 level against the US dollar, hitting their strongest since 2023.

Several market participants told Cailian Press that the yuan's appreciation is driven by multiple factors, with robust foreign trade coupled with a current account surplus sustaining resilient FX settlement demand. Analysts expect the RMB exchange rate to hold firm with a slight upward bias in the near term, and the currency may follow a "rise first, then stabilize" path over the full year.

Stable External Trade Environment Provides Strong Intrinsic Support for the RMB

On September 18, the People's Bank of China set the yuan's central parity rate at 6.7521 per dollar, 59 pips firmer than the previous fixing - the eighth consecutive session of upward adjustments.

The same day, both the onshore and offshore yuan climbed past 6.7 per dollar, their strongest since January 2023. As of press time, the onshore yuan traded at 6.6972 and the offshore yuan at 6.6947.

Ming Ming, chief economist at CITIC Securities, said in an interview that this year the yuan's pricing anchor has shifted to the trade account, with strong exports and the release of FX settlement demand providing solid support, while the influence of interest rate differentials and other factors has relatively weakened.

"Although the Federal Reserve delivered a widely expected 25-basis-point rate hike in September and raised its growth and inflation projections, with both the dot plot and the remarks from Fed officials signaling a hawkish stance and the dollar index posting a sizable gain, the yuan has remained steady - even breaking 6.7 on September 18," Ming said.

Wang Qing, chief macro analyst at Golden Credit Rating, attributed the yuan's strength on the day to two direct factors: first, the overnight dollar index pulled back after the initial impact of the Fed's rate hike was digested; second, the central parity rate has been adjusted persistently toward the strong side in recent sessions, including today.

"Amid monetary policy shifts across major overseas economies, joint US-Japan currency market intervention, and volatility in the Middle East, global FX markets have seen heightened turbulence, yet the yuan has kept a firm, slightly stronger trajectory overall. This mainly reflects China's stable external trade environment, continued high export growth, and a domestic economy holding steady momentum, which together give the yuan strong intrinsic support," Wang said.

Wang added that China has established a "macroprudential plus micro-level regulation" framework for cross-border capital flows, so large-scale capital flow risks stemming from the divergence of Chinese and US monetary cycles will be effectively contained. There is therefore no need to overestimate the Fed's impact on the yuan.

On interpreting this round of yuan appreciation, Lu Zhe, chief economist at Soochow Securities, pointed to three drivers: first, the basis for dollar strength has weakened, lifting non-US currencies; second, booming foreign trade plus a current account surplus has kept settlement demand resilient; and third, the central bank's consecutive upward fixing adjustments have sent a guiding signal, while the countercyclical factor has turned systematically positive, smoothing the slope of appreciation and suggesting market supply and demand are propelling the currency toward a gradual, moderate rise.

Analysts: RMB to Stay Firm Near Term, "Rise First, Then Stabilize" for the Year

Looking ahead, Wang Qing expects the yuan to remain firm with a slight upward bias in the short term. Key watch points include changes in China's export growth and the impact of overseas monetary policy shifts on the dollar index.

"We expect the yuan to largely move inversely to the dollar with relatively contained fluctuations going forward. The core trading range is likely to be between 6.7 and 6.9 by year-end, and the yuan may 'rise first, then stabilize' over the full year," Wang said.

Ming Ming noted that taking into account the dollar's long-term credit concerns, the sustained strength of China's exports, still-robust client FX settlement demand, and the central bank's ample policy toolkit for smoothing the exchange rate, the yuan remains in an appreciation channel. In the short term it may oscillate around 6.7 amid external disturbances such as Fed policy expectations and US inflation, he added.

Gao Xiang, an analyst at Nanhua Futures, believes the latest Fed hike is not the end of the tightening cycle and the dollar index retains downside support. The move was a preemptive hike aimed at blocking second-round inflation propagation, and uncertainty over the terminal rate remains high, with oil prices a key variable. Even if the dollar index stays strong, that does not mean USD/CNY will keep climbing - the yuan's appreciation process is not over. The currency's fundamentals are resilient, though the pace of further appreciation may gradually moderate, he said.