A top foreign exchange strategist predicts that the Chinese yuan’s recent surge past the 7.00 level against the U.S. dollar will be temporary, signaling a return to more balanced trading in the medium term. The outlook has immediate implications for CNYUSD dynamics and China-linked equities.
- Yuan briefly breached 6.98 against USD in December 2025
- CNYUSD strength above 7.00 is deemed unsustainable by top strategist
- FXI rose 3.2% and MCHI up 2.6% during peak yuan strength
- Historical trend suggests reversal within three weeks
- Expected yuan range in coming months: 7.10–7.20
- Central bank intervention possible if appreciation accelerates
The Chinese yuan's recent strength above the 7.00 threshold against the U.S. dollar is expected to be short-lived, according to a leading foreign exchange strategist. While the currency briefly traded as strong as 6.98 in early December 2025, the momentum is not sustainable due to underlying macroeconomic imbalances and capital flow pressures. The strategist emphasized that persistent overvaluation would undermine export competitiveness and trigger policy intervention from Beijing. Market data shows the CNYUSD rate had strengthened by nearly 1.8% since mid-December, driven by improved trade balances and elevated foreign portfolio inflows into Chinese assets. However, this rally is seen as a technical rebound rather than a structural shift. Historical trends indicate that sustained strength beyond 7.00 has typically lasted no more than three weeks before reverting, especially when domestic growth indicators remain weak. The FXI (iShares MSCI China ETF) and MCHI (Morgan Stanley China A Share Index ETF), both sensitive to currency movements, saw a 3.2% and 2.6% uptick respectively in early December amid optimism over yuan strength. However, if the yuan reverts toward 7.10–7.20 levels—within the range observed over the past 18 months—these indices could face downward pressure as investors reassess risk appetite in emerging market equities. Currency traders and institutional investors are adjusting positions ahead of potential central bank interventions. The People’s Bank of China has previously used foreign exchange reserves and interest rate tools to moderate rapid appreciation, which may be activated again if speculative flows intensify. In energy markets, where commodity pricing is linked to currency values, a stronger yuan reduces import costs for oil and metals but could dampen sentiment among global exporters relying on Chinese demand.