China's Yuan Heads for Weekly Gain, Hits One-Year High in Trade-Weighted Terms Amid Geopolitical Tensions

The Chinese yuan is poised for a weekly gain against the US dollar despite slight weakening on Friday amid escalating Middle East tensions and higher oil prices from Iran's actions in the Strait of Hormuz. The onshore yuan traded around 6.8867 per dollar, setting up for about a 0.28% weekly rise, while the trade-weighted CFETS yuan index reached 100.15—its highest level since March 2025—reflecting stronger performance against major trading partners' currencies compared to other non-dollar assets. Analysts attribute this resilience to China's energy self-sufficiency, diversified sources, and domestic buffers against oil shocks, alongside supportive factors like low inflation, careful currency management, and surprising yuan inflows. Experts view 2026 as a pivotal year for gradual macroeconomic improvement in China, with upcoming data on credit lending and activity indicators in focus.

Most Asian currencies fell on Friday, with the Indian rupee hitting a record low as markets remained on edge over energy market disruptions stemming from the U.S.-Israel war on Iran. The dollar firmed and was headed for its second weekly gain as markets bet that energy-fueled inflation will deter the Federal Reserve from cutting interest rates in the near-term. Markets took limited relief from the U.S. waiving more restrictions on the purchase of Russian oil, with crude prices curbing early losses in Asian trade.