Offshore Chinese Yuan jumped sharply against Dollar in thin pre-holiday trading this week, driving USD/CNH to its lowest level in more than a year. But broader FX behavior points to Dollar weakness as the primary driver. Cross-rate performance supports that view. EUR/CNH has shown mostly sideways movement, suggesting Yuan strength is not uniform across major currencies. That casts doubt on the durability of any clean break below the 7 level in USD/CNH once liquidity improves.
Policy signals have nonetheless helped support sentiment. China’s decision to keep benchmark loan prime rates unchanged for a seventh straight month indicates that authorities see no immediate need for further monetary easing. The People’s Bank of China’s continued use of “cross-cyclical” policy tools adds to that message. By prioritizing smoothing over stimulus, and with bank margins already at record lows, policymakers appear content to wait until next year before considering more forceful support.
Seasonal factors are adding to Yuan demand. Year-end exporter conversions of foreign currency receipts into Yuan have increased spot demand. China’s strong bilateral trade surplus with the U.S., which exceeded USD 1 trillion in the first eleven months of the year, continues to provide an underlying flow-based cushion.
Still, structural limits remain clear. A stronger Yuan would weigh directly on exporters and growth by raising foreign-currency prices, increasing pressure on firms already dealing with soft demand. That vulnerability was highlight by the sharp deterioration in a private manufacturing activity index last month.
Geopolitical and trade considerations would further cap upside. With the U.S.–China tariff truce set to expire next year, renewed trade tension would likely force Chinese companies to discount more aggressively, making sustained Yuan appreciation counterproductive.
Technically, USD/CNH would be entering a key long term support zone between 6.9709 (2024 low) and 38.2% retracement of 6.3057 (2022 low) to 7.4287 (2025 high) at 6.9997. Strong support would be seen inside this zone to contain downside. On the upside, firm break of 7.0843 support turned resistance will confirm short term bottoming, and that the first leg of the pattern from 7.4287 has likely completed.
EUR/CNH gyrated higher after hitting 8.1660 in late November. Momentum waned as EUR/CNH struggled to clear 55 D EMA cleanly. Yet, further rise will remain in favor as long as 8.2041 support holds. Sustained trading above the 55 D EMA will pave the way to medium term falling trend line resistance.
However, break of 0.82041 support will argue that the recovery has completed and bring deeper fall through 0.81660 to resume the whole correction from 8.4648 (2025 high). Firm break of 8.1660 in EUR/CNH, however, together with decisive break of 6.9709 in USD/CNH, however, will be a strong sign of genuine underlying strength in Yuan.
