China’s booming exports are driving up the currency, with record foreign currency flows into banks hitting $452 billion in December. Analysts predict authorities will intervene to prevent further gains due to risks to the country’s fragile economy. The yuan reached 6.9378 per dollar, the strongest since 2023.

Bank analysts believe tools like semi-official yuan selling and adjusting reserve ratios can prevent further appreciation. Forecasts show the currency may reach 6.92 to the dollar by year’s end. Concerns arise for trading partners as a stronger yuan could impact competitiveness and offshore yuan borrowing.

Out-of-consensus calls suggest the yuan could rise further, with Goldman Sachs raising its 12-month forecast to 6.7 per dollar. The People’s Bank of China manages the yuan within a trading band but declined to comment on its stance. Analysts believe the central bank will prevent a runaway rally due to economic dependence on exports.

Expectations of state bank selling and adjustments to foreign exchange reserve requirements to counteract yuan buying are high. China’s 5% GDP growth last year relied heavily on exports, leading to a record trade surplus. Despite this, uncertainties are rising for export growth as foreign governments become more cautious.

Stability has characterized the nine-month rally that lifted the yuan nearly 6% against the dollar. Risks of a positive feedback loop exist, where exporter buying could drive the currency higher. Exporters are already converting more dollars to yuan due to recent exchange rate movements. Analysts believe authorities can handle larger flows and expect the surplus to exceed $1 trillion in 2026.

Read more at Yahoo Finance: Analysis-Yuan expected to rise in 2026, but Beijing has its reasons for saying not so fast