The offshore yuan strengthened to around 6.97 per dollar, near thirty-two-month highs, as confidence in the currency continued to build alongside falling hedging costs. One-year forward contracts now allow investors to lock in settlement rates below the current spot level, marking the lowest implied costs since 2022. Data also show a pickup in forward settlement activity at Chinese banks, reflecting rising demand to manage currency exposure. Additionally, exporters have been converting more of their dollar earnings into yuan, with banks recording sustained net FX selling on behalf of clients. The currency’s rally, about 5% over the past year and recently breaking the 7 per dollar mark, has been supported by broad dollar weakness, China’s strong trade surplus, improving economic conditions, and steady inflows ahead of the Lunar New Year. Central bank guidance through firmer daily fixings has also reinforced expectations that authorities remain comfortable with further yuan appreciation.
