Market News

(Bloomberg) -- The yuan climbed past the psychological milestone of 7 per dollar for the first time since September 2024, on bets China’s central bank will allow gradual currency appreciation to boost market confidence.

The offshore yuan gained as much as 0.2% to 6.9964 per dollar on Thursday. The move came after the People’s Bank of China strengthened its daily reference rate to the the strongest level since September 2024.

The yuan is headed for its best year in half a decade against the dollar, thanks to a slump in the US currency, inflows chasing China’s stock-market rebound and easing geopolitical tensions. Beijing has been guiding the yuan stronger at a carefully orchestrated pace with its fixing in the past few months as it seeks to allow currency appreciation without triggering foreign-exchange volatility.

“The yuan has been bolstered by weakness in the dollar and seasonal foreign-exchange conversion by exporters,” said Wang Qing, chief macro analyst at Golden Credit Rating. “A sustained yuan gain will be helpful in increasing the appeal of China’s capital markets to foreign investors.”

In onshore trading, the Chinese currency gained 0.1% to 7.0067 per dollar Thursday. Flows were tilted toward dollar selling, with major Chinese banks seen buying the dollar heavily at around 7.006, according to traders asking not to be identified as they are not authorized to speak publicly.

Offshore liquidity was thin due to holiday effects, the traders said. Hong Kong markets are shut on Dec. 25-26 for a public holiday.

Despite its rally versus the dollar, many argue the yuan is still too cheap on a trade-weighted basis and considering China’s entrenched deflation. Goldman Sachs Group Inc. said the currency was 25% undervalued relative to economic fundamentals.

The yuan will likely stay strong in the range of 6.95-7 per dollar in the first half of next year, said Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group.

--With assistance from Masaki Kondo, Qizi Sun and Ran Li.

(Update with chart, analyst comments and price updates)