The Chinese yuan is soaring and beating the US dollar as the debasement trade gains steam. The USD/CNY exchange rate was trading at 6.8365, its lowest level since April 2023. It has dropped in the last 14 consecutive weeks, and is down by almost 7% from its highest level last year.
Why the Chinese yuan is in a strong bullish run
The USD/CNY exchange rate continued its strong downward trend as the US dollar debasement trade gained steam. This performance mirrors the performance of other Asian currencies.
The USD/KRW dropped to 1,425 from last year’s high of 1,485. Other Asian currencies from countries like Singapore, Malaysia, and Indonesia have continued soaring this year.
Similarly, top emerging market currencies like the South African rand, Brazilian real, and Mexican peso have all jumped in the past few months.
The Chinese yuan continued rising this week after President Trump suffered a major setback on his tariffs last week when the Supreme Court ruled against his IAAPA tariffs. Analysts believe that China is a top beneficiary as Trump’s vast tariffs power has been trimmed.
For example, while Trump has implemented new tariffs, these ones are more limited as they can only last for 150 days. The other tariffs can only be implemented after a long investigation.
At the same time, the Chinese economy is doing well and has largely separated itself from the United States. A report released in January showed that China’s exports jumped sharply last year, while the trade surplus soared to over $1 trillion.
The USD/CNY exchange rate has tumbled because of the falling US dollar as concerns about the economy continued. For example, US public debt has jumped to over $38 trillion, and the upcoming war in Iran may make it worse.
Market participants are growing increasingly concerned about the debt and whether the US will be able to pay. That explains why long-term bond yields are struggling, with the 30-year soaring to over 4.5%.
The Chinese yuan continued rising on Thursday after the People’s Bank of China signaled tolerance for a managed appreciation of the currency. It set the reference rate at 6.9228, a sign that officials are open to a stronger currency. In a note, an ANZ Bank analyst said:
“The key message is that the authorities are not attempting to halt the appreciation, but rather ensure that the appreciation pace is at a trot and not at full gallop.”
USD/CNY technical analysis
USDCNY chart | Source: TradingView
The weekly timeframe chart shows that the USD/CNY exchange rate has been in a strong downward trend in the past few months. It dropped below the key support level at 7, its lowest level in September 2024. This price was the neckline of the triple-top pattern.
The pair is about to form a death cross pattern, which happens when the 50-week and 200-week Exponential Moving Averages (EMA). A death cross is one of the most common bearish continuation sign in technical analysis.
The Average Directional Index (ADX) soared to 50, its highest level since 2022. A soaring ADX is a sign that the momentum is gaining steam.
Therefore, the pair will likely continue falling, potentially to the key support level at 6.6962, its lowest level in January 2023.
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