Offshore Yuan Holds Near Four-Year High as IMF Challenges China’s Currency Valuation

The offshore yuan is trading around 6.69 per US dollar, remaining near its strongest level since July 2022 despite renewed debate over China’s economic stimulus measures and the valuation of its currency. The International Monetary Fund (IMF) has argued that Beijing’s policy support remains insufficient and estimated that the yuan is undervalued in real terms, adding another dimension to global trade discussions.

Chinese authorities have introduced mortgage subsidies and expanded central bank support for targeted sectors, while the State Council has pledged additional measures to help meet this year’s economic objectives. However, the IMF is calling for more ambitious action to support domestic demand and address broader economic imbalances.

The yuan’s near-term direction will depend on the effectiveness of China’s policy response, the relative strength of the US dollar and whether trade-related debate over the currency’s valuation translates into meaningful policy changes.

Market Snapshot

• Offshore yuan: Around 6.69 per US dollar.
• Currency trend: Near its strongest level since July 2022.
• IMF valuation estimate: The yuan is assessed as undervalued in real terms by 17.3% to 25.3% in 2026, with a midpoint of 21.3%.
• Chinese policy response: Mortgage subsidies, targeted central bank support and additional measures intended to meet economic goals.
• Key tension: A relatively strong market exchange rate alongside concerns over the yuan’s real-term valuation.
• Main drivers: Chinese stimulus, domestic demand, US dollar movements and international trade discussions.

Offshore Yuan Strength Persists Despite Economic Concerns

The offshore yuan has strengthened towards 6.69 per dollar, maintaining its position near a multi-year high. Its performance comes as investors assess China’s policy measures and the outlook for economic activity.

Beijing has introduced mortgage subsidies and expanded central bank support for selected sectors. The State Council has also pledged a further package of practical and effective policies aimed at achieving this year’s economic objectives.

These measures indicate that policymakers remain focused on supporting activity. However, the IMF believes the current response is insufficient, calling for more ambitious action to address the economy’s underlying challenges.

For currency markets, the key question is whether additional stimulus can improve confidence and strengthen domestic demand without creating further uncertainty around China’s economic and trade relationships.

The yuan’s recent strength suggests that the exchange rate is responding to a range of market factors beyond the IMF’s assessment of its real-term valuation. The distinction between the offshore market rate and estimates of underlying currency valuation remains important when interpreting the outlook.

IMF Undervaluation Estimate Intensifies Trade Debate

The IMF estimates that the yuan is undervalued in real terms by between 17.3% and 25.3% in 2026, with a midpoint estimate of 21.3%.

This assessment has renewed attention on China’s exchange-rate position and its role in global trade imbalances. Debate centres on whether the currency’s valuation contributes to trade distortions or reflects broader economic conditions, including domestic demand, productivity and the structure of China’s economy.

The People’s Bank of China (PBoC) has pushed back against interpreting the IMF’s assessment as a judgment on the yuan’s nominal exchange rate. It has also argued that the estimate does not justify calls for a deliberate appreciation against specific currencies.

This distinction matters for traders. A real effective exchange-rate valuation is not equivalent to a direct forecast for USD/CNH, nor does it establish a specific target for the yuan against the US dollar.

Consequently, the IMF assessment may influence sentiment and trade discussions without necessarily determining the yuan’s immediate market direction.

Chinese Stimulus Remains Central to the Outlook

China’s policy response is likely to remain a major influence on the yuan. Mortgage subsidies and targeted central bank support are intended to assist selected areas of the economy, while the government’s promise of additional measures signals that further intervention remains possible.

If new policies improve confidence, stimulate domestic demand and support economic activity, the yuan could receive further support. Stronger fundamentals could also help reduce concerns about the need for more aggressive currency-related policy changes.

However, if stimulus measures fall short of expectations, the currency could face renewed pressure. Investors may question whether the current policy mix is sufficient to support growth, particularly if economic imbalances and trade tensions remain unresolved.

The market will therefore focus not only on policy announcements but also on whether measures translate into a measurable improvement in economic conditions.

Bullish Scenario

The offshore yuan could strengthen further if Chinese authorities introduce more substantial stimulus measures and the resulting policies improve economic confidence.

A weaker US dollar would provide an additional supportive factor, while sustained demand for the yuan could help maintain its position near multi-year highs.

If domestic conditions improve and trade-related concerns remain manageable, investors may become more comfortable maintaining yuan exposure. In this scenario, USD/CNH could move lower, indicating further yuan appreciation against the dollar.

However, the IMF’s valuation estimate alone should not be treated as evidence that a particular exchange-rate adjustment is imminent.

Bearish Scenario

The yuan could weaken if additional stimulus disappoints or concerns about China’s economic outlook intensify.

Renewed US dollar strength could also put upward pressure on USD/CNH, particularly if global investors favour dollar liquidity amid uncertainty. Escalating trade tensions or increased scrutiny of China’s currency policies could introduce further volatility.

If policymakers resist deliberate nominal appreciation while economic confidence remains weak, the market may continue to distinguish between the yuan’s current exchange rate and estimates of its underlying real-term value.

Under this scenario, the yuan’s recent strength could prove difficult to sustain.

Offshore Yuan Forecast

The near-term outlook for the offshore yuan remains cautiously constructive while it trades around 6.69 per dollar, close to its strongest level since July 2022. However, further appreciation is likely to depend on the effectiveness of Chinese stimulus and broader US dollar conditions rather than the IMF valuation estimate alone.

A more supportive policy response, improving confidence and a softer dollar could allow the yuan to remain firm. Conversely, disappointing stimulus, renewed trade tensions or stronger US dollar demand could trigger a reversal.

The central issue is the gap between the yuan’s current market performance and concerns about China’s underlying economic conditions. The next phase of trading will depend on whether policy measures can sustain confidence while limiting the risks associated with economic imbalances and international trade disputes.

Market Outlook: What to Watch Next

• Additional Chinese stimulus: The scale, timing and effectiveness of new measures will help determine whether confidence in the economic outlook improves.
• PBoC policy signals: Guidance on currency stability and the central bank’s response to valuation concerns could influence market expectations.
• US dollar movements: Broad dollar strength or weakness remains a key influence on USD/CNH.
• Domestic economic indicators: Evidence of stronger demand and improved activity could support the yuan’s current strength.
• Trade discussions: Further debate over currency valuation and trade imbalances could affect sentiment and policy expectations.
• Offshore yuan price action: Sustained trading near recent highs would indicate continued resilience, while a reversal could signal renewed dollar demand or concerns about China’s outlook.

Currency Hedger View

The offshore yuan presents a market shaped by two competing forces: relatively strong recent exchange-rate performance and ongoing questions about China’s economic fundamentals and currency valuation.

For businesses with exposure to China, the distinction between the offshore yuan’s market rate and real-term valuation estimates is important. The IMF’s assessment may influence trade discussions, but it does not establish a direct forecast for USD/CNH.

Companies making cross-border payments or receiving yuan-denominated revenues should monitor Chinese policy announcements, US dollar movements and developments in international trade relations. These factors may influence conversion costs and the timing of currency transactions.

For the coming sessions, the key question is whether further Chinese stimulus can reinforce confidence and support the yuan, or whether economic concerns and external pressures will interrupt its recent strength.

Currency Hedger monitors foreign exchange markets alongside broader commodity and macroeconomic conditions, helping businesses assess and manage their international currency exposure.

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Analysis: Louis Roche, Today Markets

Disclaimer: This article is for informational and educational purposes only and does not constitute investment, financial or trading advice. Foreign exchange markets involve significant risk, and currency prices can change rapidly in response to economic data, monetary policy and geopolitical developments. Forecasts and scenarios are conditional and may change as new information becomes available.

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