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China has fixed the renminbi at its strongest level against the dollar in 15 months, a move that analysts say signals its tolerance of a gradual appreciation as its soaring exports stoke tensions with trading partners.
The People’s Bank of China on Monday set the renminbi at 7.03 to the dollar, the strongest fix since September 30 2024. The currency has strengthened by almost 4 per cent this year against the greenback but has weakened against the euro and other currencies.
The relative weakness of the Chinese currency has been a bugbear for American and European leaders, who see it as unfairly advantaging their exporters and contributing to China’s enormous trade surplus.
“It’s clear we’re seeing an acceleration in renminbi strength to the end of year,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore. “They’re clearly allowing the currency to rise but in a controlled way.”
Prior to a trade truce agreed in October, US tariffs on Chinese goods were at one stage as high as 145 per cent. “Now as the tariff situation becomes a lot clearer and less troublesome, you see the currency begin the rebound,” said Mohi-uddin.
The renminbi spot rate, which can fluctuate 2 per cent either way around the PBoC midpoint fix, has strengthened in recent weeks.
The Chinese central bank, in a statement released last week in the wake of a Monetary Policy Committee meeting on December 18, pledged to “maintain the basic stability of the [renminbi] exchange rate at a reasonable and balanced level”.
Even as the central bank has allowed the currency to strengthen, “the PBoC is also becoming more resistant to gains in the [renminbi], especially as they approach 7 [per dollar], which is both a psychologically important level for the PBoC and for exporters,” said Mitul Kotecha, head of foreign exchange and emerging markets macro strategy at Barclays.
“Never gamble on a one-way appreciation” of the renminbi, the state-owned Shanghai Securities News said in an article published on Monday.
Analysts doubted the PBoC would allow an appreciation that would undermine its export powerhouse economy, given its 5 per cent GDP growth target.
“The golden goose has been the exports trend, which has been the biggest contributor to growth this year,” said Kotecha.
He added that having a strong currency at a time when other drivers of growth, such as housing, are particularly weak will make it “tough for China to achieve its growth targets”.