Yuan Strength Hits Six-Quarter High as AI Hardware Exports Surge
DB•China’s onshore yuan has posted a six-quarter gain, reaching its strongest level since 2023 as AI hardware exports boost trade. Deutsche Bank notes that imports of chips and semiconductor equipment are outpacing exports, mirroring past cycles when inbound shipments surged and supported currency appreciation.
1. Yuan Strength and Policy Tolerance
The onshore yuan has appreciated for six consecutive quarters, reaching its strongest level since 2023, while policymakers have largely refrained from intervention. This tolerance reflects a shift in economic priorities as exchange-rate swings pose less threat to export growth than in previous years.
2. AI Hardware Exports Fuel Trade Shift
Booming global demand for semiconductors, servers and other AI hardware has driven export growth in higher-margin sectors, reducing sensitivity to currency appreciation and supporting a stronger yuan despite broader economic headwinds.
3. Surge in Chip Imports
Imports of chips and semiconductor equipment have outpaced exports so far this year, making critical inputs cheaper and paralleling two prior episodes—2010-11 and 2017—when inbound shipments rose faster than outbound and coincided with yuan gains, noted Deutsche Bank.
4. Implications for Currency Policy and Banks
With reduced export vulnerability to a strong currency, exchange-rate policy may continue to favor appreciation, potentially boosting foreign exchange trading revenue for banks active in China’s currency markets, including Deutsche Bank.
