China's yuan might rise to 5 against USD should carry trades unwind, Macquarie says

China's yuan could rise to 6 or even 5 against the US dollar if domestic companies unwind their massive greenback holdings, according to Macquarie.

These firms have stockpiled over US$800 billion (HK$6.24 trillion) positions since 2022 through carry trades – borrowing the Chinese currency with a low interest rate, converting to the US dollar and investing in higher-yielding assets overseas, the bank said in a report, which was quoted by Bloomberg.

This explains why the currency continued to face depreciation pressure between 2022 and 2025, despite China’s widening trade surplus, the report said. 

Macquarie noted that if corporate confidence recovers, the interest rate gap narrows, and China's domestic demand strengthens under the drive of powerful stimulus policies, the carry trade could reverse.

Once this occurs at a large scale, it will mark the transition of the yuan from a currency primarily driven by US dollar movements to one supported by domestic factors, which will have profound implications for the Chinese economy and asset markets, the bank noted.

𝗗𝗼𝘄𝗻𝗹𝗼𝗮𝗱 𝗧𝗵𝗲 𝗦𝘁𝗮𝗻𝗱𝗮𝗿𝗱 𝗔𝗽𝗽 ↓