The China Foreign Exchange Trade System (CFETS) released data on September 14, showing that all three yuan exchange rate indices declined during the week ending September 11. The CFETS RMB Index, which measures the yuan against a basket of currencies, fell 0.15 points from the prior week to 101.49, hitting its lowest since September 2025.

The BIS currency basket RMB index dropped 0.13 week-on-week to 108.61, while the SDR basket RMB index eased 0.05 to 96.5. During the week of September 7-11, U.S. August CPI and PPI both exceeded expectations. Combined with surging international oil prices amid geopolitical tensions, these factors stoked expectations of further Federal Reserve rate hikes. The dollar index closed at 99.09, down 0.07% for the week, with movements weakening early in the week before strengthening later.

Non-U.S. currencies showed divergent trends last week. The yen was the strongest performer among major non-dollar currencies, driven by rising bets on Bank of Japan rate hikes and unwinding of carry trades. The dollar fell 1.74% against the yen on the week, while the yen has strengthened about 4% against the greenback since the start of September. The euro, though supported by European Central Bank tightening, faced headwinds from high oil prices that reignited growth concerns for the eurozone, slipping 0.13% against the dollar for the week.

The yuan once again showed resilience. By September 11, the central parity rate of the yuan against the dollar stood at 6.7743, the highest since February 6, 2023, rising 44 basis points for the week. The offshore yuan closed at 6.7080 against the dollar, maintaining a broadly stable trajectory.

Li Bin, spokesperson for the State Administration of Foreign Exchange (SAFE) and deputy director of the agency, told a press conference on September 10 that the regulator will continue to promote convenience in cross-border trade and investment, attracting more foreign-funded enterprises to invest and operate in China. During the 15th Five-Year Plan period, SAFE will persist in building a foreign exchange management system and mechanism that is "more convenient, more open, safer, and smarter."

Looking at internal factors influencing the yuan's trajectory, multiple analysts noted that against a backdrop of robust exports and a steadily appreciating central parity rate, appreciation expectations remain relatively solid. Exporters are likely to sustain strong willingness to convert foreign exchange earnings into yuan.

On the export front, August exports grew 25% year-on-year, up from a 23.9% gain in the prior month. The cumulative trade surplus for January-August reached $805.5 billion, a record high for the period. Mechanical and electrical products contributed the bulk of the increase, with August exports in this category surging 65.3% year-on-year, boosting total exports by 20.2 percentage points. Integrated circuits and automatic data processing equipment and components posted even larger gains, up 129.8% and 76.5% respectively, together contributing 11.3 percentage points to overall export growth.

CICC Macro also pointed out that the boosting effect of AI has further intensified, serving as a key factor supporting the year-on-year growth rates in August imports and exports. Guan Tao, chief economist at Huafu Securities, believes that factors affecting the yuan exchange rate's rise and fall currently exist side by side. In the short term, factors favoring yuan appreciation hold a relative advantage, but the macro tightening effects of appreciation may disturb market sentiment. Looking at a longer horizon, uncertainties and instabilities affecting the exchange rate remain numerous, and two-way volatility is the norm. He advised caution against using the yuan's appreciation to drive a grand narrative of revaluation of Chinese assets.

CICC noted that despite strengthening support for the dollar from energy prices, inflation expectations, and policy rate expectations, the dollar index has yet to achieve an effective upside breakout. Last week, Brent crude climbed above $104 per barrel, while the U.S. 10-year Treasury yield approached 5%. Market pricing for a Fed rate hike in September rose from around 60% at the start of the week to roughly 90%, with expectations for cumulative rate hikes this year also increasing from about 35 basis points to around 50 basis points.

The fact that the dollar continues to hover near 99 under these conditions suggests that markets have largely priced in a September rate hike, while pressure on the long end of U.S. Treasuries and tightening expectations from other central banks may limit further upside for the greenback. This week, market focus will shift to the Fed's September policy meeting. CICC pointed out that given markets already highly anticipate a rate increase this time, investors will pay more attention to the dot plot and press conference guidance on the future rate path.

If the meeting signals further tightening, the dollar still has room to strengthen. However, if the Fed delivers only a 25-basis-point hike without reinforcing expectations of consecutive increases, the dollar may give back gains after an initial rally. Should the Fed hold rates steady, even with a hawkish tone, markets may retract some of the recently priced-in near-term hike premium. Therefore, downside risks for the dollar appear more pronounced; only if both the rate decision and subsequent policy guidance are clearly hawkish would the dollar index be better positioned to sustainably break above 100.5.

Policy moves from other central banks also merit attention. CICC believes that the recent notable rise in Japanese government bond yields and growing expectations of BOJ rate hikes are likely to support the yen's trajectory. If the BOJ hints at further tightening in upcoming meetings, that support could strengthen. In the UK, CICC expects the Bank of England to hold rates steady in September. BoE Governor Andrew Bailey has said at the Jackson Hole symposium that second-round effects of inflation have not yet been observed, while the weakening UK labor market and slowing wage growth have also reduced the need for further policy tightening.

For the yuan, whether the dollar can break out of its current range is a key external variable shaping short-term movements. With exports remaining resilient and corporate settlement demand providing support, if the Fed's decision and policy guidance come in more dovish than market expectations, the yuan could break above 6.70 against the dollar. Conversely, if the Fed reinforces expectations of consecutive hikes, the yuan may continue to fluctuate around current levels in the near term.