RMB Exchange Rate Hits a Four-Year High as Onshore and Offshore Yuan Strengthen in Tandem

On October 23, the onshore RMB spot rate against the US dollar touched 6.6696 intraday, while the offshore yuan climbed to around 6.6688 — both marking their strongest levels since July 2022.

The RMB has now been on a steady appreciation path for more than a year. Measured from around 7.0 at the start of this year, the yuan has appreciated about 4.6% against the dollar year to date; counted from the 2025 low of 7.3–7.4, the cumulative gain is approaching 8%–10%.

Analysts note that exchange gains and losses have become an important financial variable affecting the earnings of companies expanding overseas, and demand for exchange rate risk management among listed companies is rising sharply.

The RMB may keep strengthening

With the RMB spot rate at about 6.6696 on October 23 and the one-year USD/CNY swap points at 2,005 pips, the corresponding forward rate is around 6.47. This means an enterprise locking in a one-year-forward selling rate today would get about 0.20 yuan less than the spot rate — a discount of roughly 3.0%.

The widening discount shows that market participants broadly expect the RMB to be stronger in the future than it is now, so the forward USD/CNY price naturally sits below the current spot price. This round of appreciation has occurred even without a clear weakening of the dollar index and with the China-US 10-year government bond yield spread still inverted by about 330 basis points: the offshore yuan has gained 7.1% over the past year, during which the dollar index rose 2.7% and the CFETS RMB exchange rate index rose 7.2 percentage points.

How much further can the RMB rise? Sui Xiuping, an analyst at Caitong Securities, believes the central bank leans toward letting the market play the decisive role in exchange rate formation, smoothing volatility through central parity adjustments and expectation guidance. Absent a clear overshooting of the exchange rate, the need for active central bank intervention is relatively limited. Across the past five RMB appreciation and depreciation cycles, the average correlation between the dollar index and USD/CNY was about 0.69. Taking the exchange rate at the start of 2025 as the baseline and extrapolating with the dollar index's maximum 12.67% swing this year, the lower bound of the USD/CNY range in this round would be around 6.56.

Demand for FX risk management surges

"Since the second quarter of this year, the settlement-and-sales surplus has persistently and clearly exceeded the increase in FX holdings by the central bank, and the rising settlement ratio also suggests exporters, anticipating the direction of the exchange rate, are releasing more demand to convert dollars — supplying steady ammunition for selling foreign exchange and buying the local currency," said Qin Tai, an analyst at Great Wall Securities. "This is likely the main mechanism by which the settlement-and-sales differential is driving the RMB's steady appreciation."

Since January 2025, China's monthly average trade surplus has reached US$101.78 billion, nearly double the roughly US$51.18 billion monthly average of the previous decade. The near-doubling of the trade surplus has been the source of the widening settlement-and-sales differential, forming a transmission chain of strong exports — a larger surplus — more FX conversion — greater RMB demand in the FX market — sustained RMB appreciation.

According to data released by the State Administration of Foreign Exchange (SAFE) on October 20, banks purchased US$294.2 billion and sold US$238.0 billion of foreign exchange in September, a monthly settlement-and-sales surplus of US$56.2 billion. From January to September, cumulative purchases were US$2,377.6 billion and sales US$1,983.5 billion, a surplus of about US$394.1 billion. Over the same period, cross-border receipts on behalf of clients totaled US$7,181.9 billion, with funds under goods trade continuing to flow in on a large scale.

Some market institutions estimate that enterprises accumulated US$500–800 billion in unconverted dollars between 2023 and 2025, and about US$400 billion of conversion volume has been released this year — but nearly half of the funds still remain on the books. Facing exchange rate volatility, demand for exchange rate risk management among listed companies has clearly accelerated.

Under SAFE's statistics, enterprises' forward, option and other FX derivative transactions approached US$900 billion from January to September, up 80% year on year, with the hedging ratio rising to 22.1%, up 7.9 percentage points. According to FX110 statistics, 1,736 industrial-sector A-share companies issued hedging announcements in the first three quarters of 2026, of which 1,496 involved exchange rate hedging, up 21% year on year — the exchange rate remains the primary hedging target.

Domestic funding costs still have room to fall

The sustained appreciation of the RMB has greatly weakened its actual impact on exports — to the point where strong appreciation and strong exports now coexist. Most research institutions believe that against a backdrop of strong exports and weak domestic demand fundamentals, domestic interest rates tend to move more easily down than up. A Caitong Securities research report notes that in RMB appreciation cycles, bond yields often rise first and then fall. The current appreciation may have entered its latter stage, and with FX conversion demand being released and monetary easing expectations in play, bond yields still have room to decline. A firm RMB also helps ease depreciation pressure, creating conditions for the domestic monetary policy stance to remain supportive. Market expectations and pricing of rate cuts remain relatively limited: even if no cut lands this year, as long as the central bank keeps liquidity reasonably ample there is no new negative for the bond market; and if a cut lands beyond expectations, it would further reinforce easy-money trades and push bonds lower — so the bullish momentum should be maintained.

Over the past few days, the treasury bond futures market and the interbank bond market have both kept strengthening, yields on major rate bonds have broadly declined, and the center of funding costs keeps shifting lower. As for the low point of the 10-year government bond in this round, Guosheng Securities believes the 10-year yield could fall to around 1.6%, the 30-year yield could drop below 2.0%, and interbank certificate of deposit rates could retreat to around 1.4% in the fourth quarter.

(Source: Securities China / Quanshang Zhongguo)