Yuan Nears 28-Month High, Undercuts IMF Undervaluation Claims
2h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
yuanusd-cnyforex
Fazen Markets Editorial Desk
Collective editorial team · methodology
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China's yuan rose toward a 28-month high against a basket of trading-partner currencies on 23 June 2026, according to data cited by Reuters. The move on a trade-weighted basis directly undermines the political traction of arguments that China deliberately undervalues its currency. Reuters analysis suggests this dynamic is already shaping foreign exchange positioning, with traders viewing selling USD/CNY on price spikes as the path of least resistance.
The yuan's latest ascent occurs against a backdrop where its relative strength is politically inconvenient. The International Monetary Fund, as noted by President Christine Lagarde in recent comments, maintains an estimate that the yuan remains 15-16% undervalued. That assessment is frequently cited by US officials seeking to frame bilateral trade imbalances as a function of currency manipulation. The last comparable period of sustained nominal yuan strength on a trade-weighted basis occurred in early 2024, when the CFETS RMB Index briefly traded above 99 before a multi-month retreat.
Current US monetary policy, with the Federal Funds Rate stable in the 4.75-5.00% range, provides a less compelling yield advantage over China than in prior years, reducing a major structural drag on the yuan. The primary catalyst for the currency's current trajectory is shifting market expectations regarding intervention priorities from the People's Bank of China. Beijing's recent midpoint settings for the USD/CNY parity rate have consistently surprised markets by being stronger than consensus forecasts, signaling a priority on dampening volatility rather than engineering depreciation.
Key metrics illustrate the yuan's firming trend and its divergence from political narratives. The CFETS RMB Index, a trade-weighted basket measuring the yuan against 24 currencies of China's major trading partners, climbed to 98.7, its highest level since February 2024. The onshore USD/CNY spot rate traded near 7.8100, having retreated from its 2025 high above 7.9500. For the year-to-date, the yuan has appreciated approximately 2.8% against the US dollar, outperforming the Japanese yen's 4.1% depreciation over the same period.
A sharp contrast exists between the yuan's performance against the dollar and its broader trade-weighted measure. While USD/CNY has remained rangebound between 7.80 and 7.95 for the past six months, the CFETS Index has gained over 4% in that time. This indicates the yuan's strength is broad-based, not solely a function of dollar weakness. Major market participants now identify the 7.8000 level in USD/CNY as a critical psychological and technical barrier where significant selling offers are likely to accumulate.
| Metric | Current Level | Change Since Jan 2026 |
|---|
| CFETS RMB Index | 98.7 | +3.1%
| USD/CNY Spot | 7.8100 | -2.8%
| USD/JPY Spot | 158.50 | +4.1%
The yuan's trajectory creates distinct winners and losers across global markets. Chinese importers of dollar-denominated commodities, such as state-owned oil giants CNOOC and Sinopec, benefit from increased purchasing power, potentially boosting margins on crude oil and liquefied natural gas imports. Conversely, Chinese exporters in the electronics and consumer goods sectors, including firms like Foxconn and Midea, face incremental margin pressure from a stronger currency, which reduces the renminbi value of their overseas sales.
A counter-argument exists that the PBOC could reverse course if export growth falters significantly, using its substantial foreign exchange reserves to cap the currency's rise. The primary market positioning, however, aligns with a continuation of the trend. Hedge funds and systematic traders have increased short positions on USD/CNY, while real money accounts are rotating into Chinese government bonds, attracted by relative stability and the potential for currency appreciation to enhance total returns. The geopolitical dimension, highlighted by China's willingness to deploy export controls on strategic materials like rare earths, suggests international pressure on the yuan could escalate into a broader economic confrontation rather than a contained currency dispute.
Market focus will shift to two immediate catalysts for potential volatility. The People's Bank of China's daily USD/CNY midpoint fix over the coming weeks will be scrutinized for any deviation from its recent pattern of stronger-than-expected settings, which would signal a policy shift. The next US Treasury semi-annual report on foreign exchange policies, due in October 2026, will formally assess whether China meets the criteria for currency manipulation under US law.
Technical levels provide clear near-term benchmarks. Sustained trade below the 7.8000 handle in USD/CNY spot could trigger accelerated selling, targeting the 7.7500 area last seen in late 2023. On the CFETS RMB Index, a decisive break above the 99.00 level would confirm the highest reading since 2022, reinforcing the bullish technical structure. Should the PBOC allow the CFETS Index to hold above 99 for a sustained period, it would represent a de facto rejection of the IMF's undervaluation framework.
For US-listed Chinese ADRs like Alibaba and JD.com, a stronger yuan directly increases the dollar value of their renminbi-denominated earnings when converted for reporting. This can provide a tailwind to reported EPS figures and potentially support share prices. However, the impact is often secondary to broader regulatory and growth concerns facing the sector. Investors should monitor the correlation between the USD/CNY exchange rate and the KWEB ETF, which tracks Chinese internet stocks.
The dynamics are fundamentally opposite. In August 2015, the PBOC surprised markets with a one-off devaluation, prompting a 3% drop in the yuan over two days and triggering global risk aversion. The current phase is characterized by gradual, policy-supported appreciation aimed at financial stability and internationalization. The 2015 move was a response to capital outflows and economic slowdown fears, while the current firming occurs alongside managed capital controls and a focus on cross-border trade settlement in yuan.
The CFETS RMB Index was launched in December 2015 with a baseline of 100. Its historical range has been relatively wide, reflecting shifting policy goals. It reached an all-time high of approximately 102.9 in early 2018 during a period of strong economic growth and dollar weakness. The index traded as low as 92.0 in mid-2020 at the height of global pandemic uncertainty. The current level near 98.7 sits near the midpoint of its nine-year history, suggesting the currency is not excessively strong by its own historical benchmark.
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