The offshore yuan broke through the key 6.80 level against the U.S. dollar, rapidly strengthening market expectations for further appreciation. A series of short-term catalysts were released simultaneously in early May.

Easing Middle East Tensions Rapidly Reduce the Dollar’s Safe-Haven Premium

The most direct external factor comes from the Middle East.

Since the escalation of the U.S.–Iran conflict, the U.S. dollar had continued strengthening as the world’s primary safe-haven currency, with the Dollar Index once approaching 100. However, entering May, easing tensions in the Middle East reduced safe-haven demand, causing the Dollar Index to decline sharply. As of May 7, it had fallen below the 98 level, driving broad appreciation across major non-dollar currencies, including the yuan.

More importantly, the oil price linkage effect has also become supportive. As tensions eased, oil prices retreated significantly. For China, as a major energy-importing country, lower oil prices reduce imported cost pressures and improve trade conditions, directly supporting the yuan from a fundamental perspective.

In a report released on May 8, Citigroup also pointed out that based on the experience of the 2025 Busan Summit, once Middle East tensions ease, interaction between China and the United States could help improve risk appetite and further support yuan appreciation.

Japanese FX Intervention Triggers Broader Asian Currency Strength

The second source of strength comes from Japan.

Around May, after USD/JPY briefly broke above the critical psychological level of 160, the Japanese government and the Bank of Japan intervened decisively, launching another large-scale foreign exchange intervention for the first time since July 2024.

According to Bloomberg’s analysis of BOJ account data, the intervention on April 30 alone reached approximately ¥5.4 trillion, close to the ¥5.5 trillion record set in July 2024. On May 6, Japanese authorities intervened again, driving the yen approximately 1% stronger against the dollar that day.

The rapid rebound in the yen created a significant spillover effect across Asian currencies. Data shows that around the time of Japan’s intervention, the yuan appreciated approximately 0.5% against the dollar. Looking back at Japan’s two interventions in 2024, the yuan also appreciated around 0.5% and 0.2%, respectively.

Guosen Securities described this phenomenon as a “contagion effect led by the yen and Korean won,” attracting international capital into Asian markets, with the yuan strengthening naturally as a key anchor currency in the region.

Exports Far Exceed Expectations in April, Strengthening the Foundation for Net FX Inflows

On May 9, China Customs released April 2026 trade data. In U.S. dollar terms, exports rose 14.1% year-over-year, a sharp acceleration from March’s 2.5% growth rate. In yuan terms, April exports increased 9.8%, imports rose 20.6%, and the trade surplus widened significantly to $84.82 billion from March’s $51.13 billion.

The stronger-than-expected export data supports the yuan from multiple dimensions. From an aggregate perspective, the expansion of the trade surplus means the current account continues to provide stable net supply to the foreign exchange market. From a structural perspective, April’s strong export growth was mainly concentrated in AI-related supply chains — integrated circuit exports nearly doubled year-over-year, automatic data processing equipment exports rose 47%, and high-tech product exports increased 39%. The strong growth in these categories not only reflects expanding shipment volumes, but also higher chip and electronic component prices, which significantly boosted export values.

The continued outperformance in exports has completely rewritten the market’s pessimistic pricing of China’s trade outlook that had persisted since the end of last year. The sustained current account surplus remains the strongest underlying logic behind this round of yuan appreciation.

Exporters Accelerate FX Settlement, Creating a Positive Feedback Loop

Against the backdrop of long-accumulated large trade surpluses, Chinese companies are holding substantial foreign exchange reserves. As the yuan broke through the key 6.80 level, appreciation expectations intensified, prompting large numbers of exporters to accelerate foreign exchange settlement. This behavior further pushed the yuan higher, forming a positive feedback loop of “appreciation → FX settlement → further appreciation.”

This trend can also be verified through foreign exchange settlement data. From January to March 2026, the RMB loan settlement surplus reached RMB 1.25 trillion, compared with a deficit of RMB 329 billion during the same period last year. According to central bank data, foreign exchange reserves increased by RMB 203.4 billion during the first quarter, showing that settlement activities between banks and the central bank continue to inject base money into the system.

As “the stronger the yuan, the more exporters settle dollars” becomes a market consensus, short-term supply and demand dynamics continue tilting further in favor of yuan appreciation.

Rising Expectations for a Trump–Xi Meeting Accelerate the Decline in Risk Premiums

On May 9, J.P. Morgan Asset Management released a report stating that the yuan shows a clear trend of gradual appreciation. If a meeting between Trump and Xi Jinping achieves meaningful progress, the yuan could potentially strengthen toward 6.50 against the U.S. dollar.

Citigroup echoed this view, arguing that such a meeting could accelerate efforts to resolve Middle East tensions and further boost both the yuan and Chinese equities.

The key negotiations surrounding the summit are expected to focus on three major areas.

First, Middle East issues. Both China and the U.S. have strong incentives to quickly resolve Middle East tensions, reopen the Strait of Hormuz, and ease other potential strategic conflicts.

Second, trade relations. J.P. Morgan expects both sides to reach a framework agreement for further negotiations. China may agree to significantly increase purchases of U.S. soybeans, Boeing aircraft, crude oil, and natural gas in exchange for extending the current tariff and export-control truce.

Third, high technology. Markets are closely watching whether the U.S. will relax export controls on advanced semiconductors in exchange for China easing restrictions on rare earth exports.

Citigroup also warned that although the economic agenda promoted by both sides may help strengthen short-term bilateral stability, it is still unlikely to fully reverse broader structural headwinds. However, from the perspective of the yuan exchange rate, even a cooling of trade tensions and an extension of tariff truces would mean that one of the largest risk premiums weighing on the yuan over the past two years is gradually being removed.