Offshore yuan trades near 32-month high

The offshore yuan traded around 6.96 per dollar on Friday, hovering near its strongest level since May 2023, fueled by renewed corporate demand for the currency.

Chinese banks facilitated record foreign currency sales into yuan in December, driven by expectations of further gains and seasonal demand. Additional support came from the PBoC, whose daily reference rate has strengthened steadily, signaling tolerance for managed appreciation.

As the yuan continued to rally, global banks are revising forecasts upward, with Morgan Stanley now seeing it reach 6.85 per dollar in Q1, while Australia & New Zealand Banking Group expects 6.85 by year-end, and Macquarie Group 6.8.

Meanwhile, Deputy Governor Zou Lan said there is “some space” to cut reserve requirements and policy rates. Starting Monday, the PBOC will trim rates on structural monetary tools by 25 bps, lowering the one-year relending rate to 1.25% from 1.5%. Over the week, the yuan is poised for its largest weekly gain since May 2023.