(Yicai) Dec. 23 -- Chinese exporters are hastening to convert foreign currency payments for orders as the Chinese yuan strengthens against the US dollar, recently hitting a 14-month high, with heavier year-end currency exchanges threatening to add further upward pressure on the redback.

Small exporters typically prefer prompt conversion and rarely use hedging tools to lock in exchange rates. With the yuan’s recent and sustained appreciation, many face immediate forex losses as the same dollar amount converted now yields less in yuan, and any attempt to protect margins by raising prices would erode the price competitiveness of small manufacturers.

Ding Yandong, an international trader based in Zhejiang province, told Yicai that in response to the yuan’s ongoing gains, his company has speeded up conversions to reduce losses from exchange rate swings. “We didn’t always convert immediately, but recently we convert as soon as we get the money, especially for large orders,” he said.

The onshore and offshore yuan breached 7.05 versus the US dollar on Dec. 15, with the former appreciating to as much as 7.0471 and the latter as much as 7.04263, their highest since October 2024. The offshore yuan strengthened to 7.0305 as of 9.20 a.m. today, while onshore the yuan was unchanged from yesterday’s close of 7.0366.

The yuan’s rally has two main drivers, according to Wang Qing, chief macroeconomic analyst at Golden Credit Rating International. First, the US Dollar Index -- a measure of the greenback’s value relative to a basket of other currencies -- dropped below 100 in the period around the Federal Reserve’s Dec. 11 rate decision, prompting a broad appreciation among non-dollar currencies, including the yuan.

Second, corporate forex conversions typically rise at year-end giving the yuan a seasonal lift, and the recent rally may be prompting companies to release previously pent-up conversion demand more quickly, Wang said.

The market expects the yuan to remain moderately strong this week, and a swift break toward 7 per dollar looks unlikely as the People’s Bank of China leans against sharp currency moves, according to the latest weekly report from cross-border payment solutions provider PingPong Payments.

The dollar-yuan exchange rate will likely drop from the current less than 1 to 7 to around 1 to 6 over the next decade, Huang Qifan, former mayor of Chongqing, said at the second Shenzhen Xiangmi Lake Financial Annual Conference that ended on Dec. 21.

Editor: Futura Costaglione