China’s yuan climbed to its strongest level in more than three years on Tuesday, even as March trade data undershot market expectations, according to figures reviewed by Baur at Commerzbank.
The currency broke below 6.82 per dollar, extending gains of more than 1% since the start of April. The move signals firm demand for the yuan despite softer export performance and ongoing geopolitical tensions in the Gulf, which typically weigh on Asian currencies.
Trade surplus narrows but remains large
March export growth came in weaker than forecast, while imports surged 27.8% year-on-year. The sharp rise in imports compressed the monthly trade surplus to 51.1 billion dollars.
Although the surplus narrowed, Baur noted that the level remains high by historical standards, underlining that China continues to run a sizeable buffer on the trade front.
Current account surplus likely off its peak
Baur estimated that China’s current account surplus in the first quarter, as a share of gross domestic product, likely eased from the previous quarter’s 4.9% peak.
The moderation is largely attributed to the spike in import activity, which offset the slower pace of outbound shipments. That shift suggests external balances are normalising after a period of unusually strong surpluses.
Capital inflows emerge as key driver
The strengthening of the yuan against a backdrop of weaker trade momentum points to capital inflows as a primary support for the currency.
Data from the State Administration of Foreign Exchange released last week showed a net inflow of 22 billion dollars into Chinese government bonds in the first quarter of 2026, highlighting persistent foreign demand for yuan-denominated fixed income assets.
Market data also indicate steady appetite for the yuan in the foreign exchange market, reinforcing the view that portfolio flows are compensating for softer trade dynamics.
Mild inflation and steady policy stance
Domestic price pressures remain subdued. The National Bureau of Statistics reported that consumer prices rose 1.2% in March compared with a year earlier, a relatively modest increase.
Against that backdrop, the People’s Bank of China kept its one-year loan prime rate unchanged at 3.45% in its latest policy decision, signalling that officials are broadly comfortable with current monetary conditions and see no immediate need to tighten or loosen policy.
Dollar dynamics and global risk sentiment
For traders focused on instruments priced against the US dollar, the yuan’s appreciation complicates the broader picture of global risk appetite.
A stronger currency poses a headwind for Chinese exporters by eroding price competitiveness abroad. At the same time, persistent bond inflows and a firm exchange rate suggest underlying confidence in the stability of China’s financial system.
Risk of volatility as fundamentals diverge
Episodes where currency performance diverges from traditional indicators such as trade balances have, in past cycles, preceded heightened volatility across other asset classes.
With strong capital inflows set against moderating trade fundamentals, the current environment may make it difficult to position confidently for a sustained directional move in the yuan.
Until the tension between robust portfolio flows and softening trade data is resolved, traders may face a higher risk of abrupt shifts in currency and related markets.
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