Chinese yuan Photo:VCG

The continuous strong performance of the yuan against the US dollar, with both onshore and offshore rates breaching key thresholds, has attracted market attention this week.

The offshore yuan on Thursday strengthened against the US dollar to break through the 6.83 mark, while the onshore yuan broke the 6.84 mark, both reaching new highs since April 2023. The yuan's central parity rate strengthened to 6.9228 against the US dollar on Thursday, according to the China Foreign Exchange Trade System, the third consecutive day of the yuan's appreciation.

While some market participants may view this rally as unexpected, a closer examination reveals its inevitability shaped by multiple converging factors. Domestically, the traditional year-end surge in foreign exchange settlement by export-oriented companies has injected seasonal momentum into the yuan's performance. This effect has been particularly pronounced this year. As global supply chains gradually recover, there has been a clear trend of order recovery for Chinese exporters, leading to a concentrated release of settlement demand and boosting market demand for the yuan.

Meanwhile, the resilience of China's economy provides solid backing for the yuan's strength. China's GDP reached a record scale of 140.1879 trillion yuan ($20.01 trillion) last year, up 5 percent year-on-year, according to data from the National Bureau of Statistics.  

With macroeconomic policies gaining traction to stabilize growth into 2026, adjustments in the property sector showing signs of narrowing, and exports expected to remain robust in the first quarter, the stable performance of the real economy is poised to further enhance the appeal of yuan-denominated assets.

From an external perspective, continued weakness in the US Dollar Index has created appreciation room for non-US currencies, including the yuan. Against this background, international capital has begun to reallocate assets in emerging markets, with the yuan emerging as one of the preferred options due to its stability and growth potential. It is the combined effect of these internal and external factors that has pushed the yuan exchange rate to a new high in the short term.

However, the yuan's trajectory is not a one-way path over the medium to long term. The central bank's policy framework remains firmly focused on ensuring basic stability. In its report on monetary policy implementation in the fourth quarter of 2025, the People's Bank of China said that it would adhere to the principle that the market plays a decisive role in the formation of exchange rates, allowing the exchange rate to function as an automatic stabilizer and shock absorber for the macroeconomy and the balance of payments. 

A combination of measures will be adopted to strengthen expectation guidance, balance supply and demand in the foreign exchange market, and guard against the risk of exchange rate overshooting, thereby maintaining the yuan's basic stability at reasonable equilibrium levels. This clear policy orientation has stabilized market expectations and pointed out the long-term performance direction of the yuan's exchange rate.

Under this orientation, two-way fluctuation is the norm. This means the currency can exhibit strength under certain conditions and adjust when circumstances shift. This flexible mechanism is a reflection of China's broader economic resilience. China has a complete industrial system, the advantage of a super-large-scale market, and a sufficient toolbox of macroeconomic policies, which can effectively respond to external shocks and digest the market impact of short-term fluctuations. 

Furthermore, fundamental factors such as the balance of international payments, abundant foreign exchange reserves, and continuous development of the financial market have laid a solid foundation for the long-term stability of the exchange rate.

When assessing whether exchange rate levels are reasonable, short-term performance alone is insufficient. What ultimately matters is the alignment with economic fundamentals. China is navigating a critical period of economic transformation and upgrading, with tangible progress in high-quality development. Manufacturing competitiveness continues to strengthen, and the structure of services trade is steadily improving. These substantive developments support the yuan's value. As long as China maintains stable and healthy economic development, the currency possesses the fundamental conditions to remain stable at reasonable and equilibrium levels.