RMB Weakens Against USD Amid Renewed Interest Rate Expectations

The Chinese yuan (RMB) ended a volatile week weaker against the US dollar, despite briefly reaching its strongest level in more than three years. The onshore USD/CNY rate closed at 6.7133 on September 25, up from 6.6977 a week earlier, resulting in a RMB decline of 0.0156 yuan or 0.23%. Offshore USD/CNH rose more sharply, from 6.6954 to 6.7230, a 0.41% RMB drop.

The People's Bank of China (PBOC) has signaled its willingness to tolerate a stronger currency, with the USD/CNY fixing strengthening from 6.7521 on September 18 to 6.7487 on Monday, the strongest since February 2023. This move marked a relaxation of nearly a year of fixings designed to restrain RMB appreciation.

The RMB has performed more strongly against several other major currencies. EUR/CNY fell from 7.6930 to 7.6474, resulting in a RMB gain of about 0.59% against the euro, while GBP/CNY dropped from 8.9715 to 8.8967, an RMB gain of roughly 0.83%. The Australian dollar weakened more sharply, with AUD/CNY falling from 4.7718 to 4.7150, leaving the RMB about 1.19% stronger.

External developments dominated sentiment, with the US dollar reaching a two-month high on Thursday as strong US data and hawkish Federal Reserve commentary increased expectations of further rate increases. The Trump-Xi summit produced an extension of the US-China trade truce but few major economic breakthroughs, limiting any lasting currency boost from improved bilateral sentiment.