The USDCNH pair has remained relatively stable since the beginning of the year, but the yuan has recently reached its strongest level against the US dollar since last November. The pair has shed approximately 2.5% of its value since January. This widespread weakness in the US dollar is evident across the market, with the EUR/USD pair breaching the 1.1700 level today. The greenback is faltering amid trade uncertainties, the looming debt ceiling, and renewed attempts by Donald Trump to undermine Federal Reserve Chair Jerome Powell, with the Wall Street Journal reporting that a new Fed chair could be announced as early as this autumn. Let's examine the factors at play in China and the yuan's performance.
The Chinese Premier has indicated that the country will take decisive steps to boost consumption, aiming to transform China into a consumer powerhouse and enhance the economy's resilience to external shocks like global slowdowns and trade tensions. While the finance minister acknowledges that the challenges are unprecedented, the National Development and Reform Commission (NDRC) remains confident in its ability to minimize their negative impact. This optimism, coupled with positive economic growth forecasts from institutions like Goldman Sachs and Citigroup, is attracting capital to Chinese assets, supporting the yuan and driving the USD/CNH pair to its lowest levels since November.
It is also worth noting that the People's Bank of China (PBOC) sets its daily reference rate at levels slightly higher than market estimates, suggesting that authorities are aiming for controlled stability to support exports. Furthermore, the expansion of China's gold market in Hong Kong is designed to strengthen the yuan's international role, a long-term factor supporting the currency.
From a technical standpoint, the pair has recently struggled to see more dynamic declines but is holding firm to the trend line established after its previous peaks. A key support level, determined by the 23.6% Fibonacci retracement of a major uptrend that began in 2022 when the pair was around 6.30 (approximately 12% lower than its current level), is currently being tested. The next short-term support lies near the 7.14 level, while in the medium term, investors may target the September lows around 7.00.
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