Yuan seen rising in 2026, but China signals resistance to rapid gains

China’s export-driven yuan gains are set to continue in 2026, but policymakers are poised to cap the pace of appreciation.Summary:Analysts expect the yuan to strengthen further in 2026, but policy resistance remainsExport inflows and FX conversions have surged to record levelsConsensus forecasts cluster near 6.9 per dollar, with upside risks flaggedAuthorities are expected to lean against excessive appreciationTwo-way volatility remains Beijing’s preferred outcomeSource: ReutersChina’s currency is widely expected to strengthen further through 2026, supported by booming exports and heavy foreign exchange inflows, but policymakers are signalling little appetite for allowing a rapid or uncontrolled rise. While market forces continue to push the yuan higher, Beijing appears intent on slowing the pace of appreciation to protect exporters and preserve economic stability.Over the past nine months, the yuan has gained nearly 6% against the US dollar, driven largely by export strength and rising conversions of foreign currency into local units. As the exchange rate moved through the psychologically important 7-per-dollar level last year, foreign currency inflows into Chinese banks surged to a record $452 billion in December, with $311 billion converted into yuan. These flows pushed the currency to its strongest level since 2023, briefly trading near 6.94 per dollar.Despite this momentum, analysts broadly expect authorities to act if gains accelerate further. A survey of 13 global banks puts the average year-end forecast at around 6.92 per dollar, while derivatives markets are pricing a somewhat stronger outcome near 6.8. Policymakers are seen deploying familiar tools to cap appreciation, including state bank dollar buying, tighter daily trading bands, verbal guidance, and adjustments to foreign exchange reserve requirements.Still, upside risks are increasingly acknowledged. Goldman Sachs recently revised its 12-month forecast to 6.7 per dollar, citing record inflows and a perceived shift in central bank communication. Analysts noted that the pace of appreciation has exceeded earlier expectations, even before the recent broad-based weakening in the US dollar.China’s central bank, the People's Bank of China, continues to manage the currency within a 2% trading band around a daily midpoint. Officials have reiterated that two-way fluctuations remain policy preference, reinforcing expectations that authorities will intervene to smooth moves rather than endorse a one-directional rally.A significantly stronger currency would risk eroding export competitiveness, a key pillar of China’s growth model. Exports underpinned roughly 5% GDP growth last year, delivering a record trade surplus of $1.2 trillion. Economists argue that while export strength supports the yuan, policymakers are unlikely to tolerate appreciation that undermines this advantage, particularly as global trade tensions and protectionist pressures rise.Looking ahead, analysts expect continued strength in export receipts and repatriation flows to keep upward pressure on the currency. However, Beijing is widely expected to ensure any appreciation remains gradual, allowing the yuan to strengthen without destabilising growth or financial conditions.