China’s yuan is approaching levels that could unleash heavy corporate dollar selling, as companies shift their holdings back into local currency. July data already show stronger demand for converting foreign exchange, and analysts say the momentum is building for yuan appreciation.
Dongwu Securities’ Lu Zhe estimates as much as $300 billion could be converted if the yuan strengthens to around 7.04–7.05, while Barclays’ Lemon Zhang projects $240 billion in sales if it reaches 7.08–7.10. Chinese firms currently hold about $700 billion in dollars.
The People’s Bank of China has been steering its daily fixing closer to 7.1 per dollar, seen as a signal it is comfortable with a stronger yuan, possibly as leverage in trade talks with Washington. But volatility and tariff risks mean corporates are expected to raise hedging, and some exporters may start worrying that yuan gains will erode profits from dollar holdings.
This article was written by Eamonn Sheridan at investinglive.com.