The People's Bank of China set the yuan's daily reference rate at 6.8176 per dollar on Thursday, extending a strengthening bias that has put the currency on course for its longest winning streak in more than a decade as the global AI investment boom reshapes Beijing's tolerance for a firmer exchange rate.
The People's Bank of China set the yuan's daily reference rate at 6.8176 per dollar on Thursday, extending a strengthening bias that has put the currency on course for its longest winning streak in more than a decade as the global AI investment boom reshapes Beijing's tolerance for a firmer exchange rate.
The PBOC's fix, down from 6.8240 in the previous session, marks the latest signal that policymakers are growing more comfortable with yuan appreciation even as China's economy faces headwinds from weak domestic demand and a prolonged property downturn. The onshore yuan traded around 6.79 on Thursday, its strongest level since early 2023, and is heading for a sixth consecutive quarterly gain against the dollar — a streak not seen since 2013.
"What has changed is exports appear less sensitive to currency moves than previously thought, meaning the benefits of currency appreciation carry more weight in exchange-rate policy," said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
The shift reflects a structural transformation in China's export engine. About half of April's record export growth came from semiconductors and computer-related products, while traditional categories such as clothing and furniture were flat or shrinking, according to customs data. The country's trade surplus has ballooned from about $260 billion in 2013 to nearly $1.2 trillion last year, even as the yuan weakened from around 6 per dollar to beyond 7 at various points during that period.
The changing composition of exports means China's competitiveness is no longer as dependent on a cheap currency. Companies making semiconductors, servers and AI hardware operate on wider margins than the garment and furniture manufacturers that once dominated the export sector, reducing the pain of a stronger yuan. At the same time, imports have surged — particularly of chips and semiconductor equipment — and a firmer currency makes those purchases cheaper. Deutsche Bank analysts noted that the last two periods when inbound shipments grew much faster than outbound, in 2010-11 and 2017, both coincided with yuan appreciation.
"As Chinese firms continue moving up the value chain, their competitiveness is less dependent on a weak exchange rate," said Rajeev De Mello, portfolio manager at Gama Asset Management SA.
Bullish calls multiply as structural shift takes hold
The trend has emboldened a growing number of analysts to bet on further yuan gains. Goldman Sachs Group estimates the currency is more than 20% undervalued and may strengthen to about 6.5 per dollar in the coming year. Macquarie Group sees the yuan potentially reaching 5 per dollar, while Alpine Macro strategist Yan Wang envisions a move toward 4 over the longer term. The consensus estimate compiled by Bloomberg points to a year-end level of 6.75.
UBS Group's top trade for 2026 was going long the yuan against its trade-weighted basket, a position that has returned 4% to 5% in the last six months, according to Rohit Arora, the bank's head of Asia FX and rates strategy. UBS expects a further 3% to 4% gain in the coming months.
Policymakers are unlikely to welcome an unchecked rally. Domestic demand remains weak, the property slump continues to weigh on confidence, and external risks including trade frictions and slowing global growth persist. A rapidly strengthening yuan could squeeze exporters' margins, particularly in sectors where competition remains fierce. The PBOC has repeatedly said it will prevent overshooting in the exchange rate, and regulators have urged companies to step up hedging against currency swings.
But a stronger yuan also serves Beijing's strategic interests. It helps shield the economy from imported inflation as the Iran conflict pushes up energy prices. It aligns with President Xi Jinping's ambition to make the renminbi a more "powerful" currency and supports efforts to reduce reliance on the dollar-dominated financial system. A firmer yuan could also ease longstanding criticism from Western governments that China keeps its exchange rate artificially weak.
"Appreciation signal for the yuan is a sort of olive branch for the trading partners who are becoming more uncomfortable with this 'China shock 2.0' in the advanced manufacturing segment," said Homin Lee, strategist at Lombard Odier Singapore Ltd.
The last time the PBOC faced a similar strengthening cycle, between 2020 and late 2021, it intervened through verbal warnings, adjustments to foreign-exchange reserve requirements and measures to discourage one-way appreciation bets. This time, the central bank has maintained daily fixings near their strongest in three years, and exporters have been converting more dollar earnings into yuan — a sign they expect the currency to remain stable or strengthen further.
"Today the politics and macro are lining up, allowing China to move towards the long-standing objective of a 'strong currency'," said Rory Green, chief China economist at TS Lombard.
This article is for informational purposes only and does not constitute investment advice.
