The offshore yuan is feeling the pressure as the US dollar keeps gaining strength, boosted by the Federal Reserve’s cautious approach to interest rates. While the yuan’s slide reflects broader global trends, the People’s Bank of China is treading carefully, adjusting its policies to prevent sharp fluctuations. With markets closely watching for any shifts in policy from both China and the US, all eyes are on what might drive the yuan’s next move.
The offshore yuan (USD/CNH) slipped past the 7.25 per dollar mark on Friday, hitting its weakest level in over a week, as the US dollar maintained its upward trajectory.
The dollar’s strength was driven by hawkish remarks from Federal Reserve Chair Jerome Powell, who indicated that the Fed is not in a hurry to lower interest rates, further supporting demand for the greenback.
At the latest reading, the USD/CNH pair was trading at 7.25255, having touched a session high of 7.25963.
The People’s Bank of China (PBOC) has reduced its intervention to prop up the yuan, reflected in softer daily midpoint fixings, a move that hints at its intention to moderate sharp declines against the US dollar.
This has been interpreted by market participants as a signal of decreased currency market intervention.
Meanwhile, the PBOC maintained key lending rates unchanged for the fifth straight month in March 2025, aligning with market expectations.
The one-year loan prime rate remains at 3.1%, while the five-year rate holds at 3.6%. These rates remain at historically low levels following reductions in October and July 2024.
The central bank has also left the door open for potential future changes in lending rates or the reserve requirement ratio, depending on economic conditions.
The offshore yuan (USD/CNH) advanced by 0.03% during the latest session, closing at 7.25255 after opening at 7.25068.
The pair followed a gradual upward trend, hitting an intraday high of 7.25963 before slightly retracing and closing near its peak.
Key technical indicators point to bullish momentum. The moving averages (MA 5,10,30) show consistent upward movement, with shorter-term MAs staying above longer-term ones, reinforcing the positive trend.
The MACD (12,26,9) also indicates bullish sentiment, with the MACD line (blue) positioned above the signal line (yellow) and an expanding histogram supporting upward momentum.
Important levels to watch include immediate resistance at 7.25357 and key support at 7.24597.
A decisive move above resistance could open the door for further gains, while a drop below support might weaken the bullish outlook.
Despite the US dollar’s continued strength—bolstered by robust economic data and tightening monetary policy expectations—the offshore yuan faces downward pressure.
However, efforts by Chinese policymakers to boost the domestic economy and stabilise the currency may provide a counterbalance.
Traders should closely monitor updates from the People’s Bank of China and any shifts in US-China relations that could influence currency movements.
Click here to open account and start trading.
Follow us on:
