Commentary: The ‘Settlement Rush’ Isn't Driving the Yuan’s Rally
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Since mid-October, the Chinese yuan has strengthened sharply against a U.S. dollar that has only edged lower. This asymmetric rally has ignited market debate over a supposed “year-end settlement rush” by Chinese companies converting their foreign currency earnings. But is a seasonal flood of conversions really driving the yuan’s ascent, and what does this mean for its trajectory heading into the new year?
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- The yuan’s recent rise isn’t driven by a corporate year-end settlement rush; data shows settlement ratios and trading volumes are down, while FX deposits rose.
- Main factors behind the yuan’s appreciation are central bank guidance and a weakening dollar, with a high yuan-dollar correlation of 0.95 since December.
- Future yuan gains face risks from a potential dollar rebound and central bank actions to prevent rapid appreciation, making a break below 7 yuan per dollar uncertain.
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Who’s Who
- Shenwan Hongyuan Securities
- Zhao Wei, the chief economist at Shenwan Hongyuan Securities, contributed to the article's insights on the Chinese yuan's performance. The firm employs experts who analyze economic trends and their impact on currency fluctuations.
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What Happened When
- January 2025：
- Market expectations for a Federal Reserve rate cut may be premature.
- September 2025：
- Corporate settlement ratio rose to 63.1%, and the surplus in banks’ settlement and sales on behalf of clients was $51.8 billion.
- mid-October 2025：
- The Chinese yuan began to strengthen sharply against a U.S. dollar that had only edged lower.
- October 2025：
- Corporate settlement ratio fell to 54.1%.
- Oct.14, 2025 to Dec.1, 2025：
- The yuan rallied 1.42% against the dollar, while the dollar index weakened by 0.34%.
- late-October 2025：
- The People’s Bank of China used its counter-cyclical factor to guide the yuan higher.
- November 2025：
- Corporate settlement ratio declined further to 52.0%. Net settlements turned negative. The surplus in banks’ settlement and sales on behalf of clients shrank to $16.4 billion. Corporate foreign currency deposits rose by $9.2 billion. Swap points trended lower from this month.
- late November 2025：
- The People’s Bank of China withdrew its counter-cyclical support and set the daily reference rate significantly weaker than market rates.
- Beginning of December 2025：
- The primary catalyst for yuan strengthening became the weakening dollar, with the one-month rolling correlation between the two currencies climbing back to a high of 0.95.
- As of Dec.19, 2025：
- The official yuan fixing was at its weakest level relative to estimates since 2022.
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