Yuan firms to one-year high on exporter US dollar selling

China's yuan climbed on Friday to its strongest in a year against the US dollar, bucking

weakness in Asian peers, as traders cited US dollar selling by local exporters after the pair breached a key threshold.

The onshore yuan touched 7.0908 per US dollar in early trade, its highest since Nov. 4, 2024, before paring gains following the release of soft economic activity data.

In a note to clients, UBS traders said the moves were largely attributed to US dollar selling by local exporters and some momentum traders pushing the offshore yuan to the stronger side of the 7.1180 level. 

Exporters generally convert some US dollar earnings into yuan near the end of the year end to cover domestic expenses such as wages and taxes, and also to meet regulatory requirements.

Both the onshore yuan and offshore yuan broke to the stronger side of 7.10 per US dollar on Thursday.

October data showed growth in China's factory output and retail sales was its weakest in more than a year, putting pressure on policymakers to revamp the US$19-trillion export-driven economy.

Mounting supply and demand strains threaten to further curtail growth.

DBS analysts said the easing of trade tension with the United States has lent support to the yuan, helped by stronger foreign interest in Chinese equities.

However, they cautioned that weakness in regional peers such as the Korean won and Japanese yen could weigh on the currency and add depreciation pressure.

New loans by Chinese banks fell sharply in October from the previous month and missed market expectations, as households and businesses remained wary of taking on more debt due to economic uncertainties and trade tensions between Beijing and Washington.

The spot yuan opened at 7.0948 per US dollar and was last trading at 7.0955, 10 pips firmer than the previous late session close and 0.18 percent weaker than the midpoint.

Prior to the market opening, the People's Bank of China set the midpoint rate at 7.0825 per US dollar, its strongest since Oct 14,2024 and 139 pips firmer than a Reuters' estimate.

The spot yuan is allowed to trade 2 percent either side of the fixed midpoint each day.

The offshore yuan traded at 7.096 yuan per US dollar, up about 0.01 percent in Asian trade.

The US dollar index, which measures the greenback against six major currencies, was 0.044 percent lower at 99.2, hovering around its weakest level in two weeks. 

Some investment houses expect the Chinese yuan to strengthen beyond the key psychological mark of seven to the US dollar next year, for the first time since 2023. 

Reuters