The Chinese currency experienced significant fluctuation during 2018 but its midpoint never approached the psychological 7.0 level. Given that the yuan's global push is moving forward sustainably and its use in international payment systems is steadily rising, experts remain positive about the currency's performance in 2019.

The year can be divided into four general stages. The Chinese economy began the first four months with a strong performance that looked like it might bode well for the whole year amid the U.S. dollar's continued weakening. However, the turning point came in April when the yuan itself started to weaken. The second stage lasted until June as the U.S. Dollar Index gradually stabilized and China-U.S. trade friction escalated.

Stage three lasted from June 19 to August 3. It began right after the U.S. announced tariffs on 50 billion U.S. dollars worth of Chinese goods. Other factors such as U.S. Fed rate hikes, the strengthening of the U.S. dollar and China's domestic downturn all contributed to the yuan's accelerated weakening.‍

“The trade tensions seemed to be the biggest negative contribution to the RMB's (yuan) performance this year. Since March this year when the trade tension started, the RMB exchange rate has been devalued by about 9.1 percent. That's 75 percent of [the] total decline since August 2015. But that's only part of the story,” said Wang Jianhui, general manager of the R&D department at Capital Securities.

From his perspective, the major pressure on the yuan's rate might “come from the divergence of economic performances of both countries.”

“Before 2008, the U.S. economy had been decelerating from over four percent to only 1.1 percent, while the Chinese economy had been increasing the growth from 9.1 percent to over 12 percent. But after 2009, the trend reversed. While the Chinese economy has been decreasing from almost 11 percent to only 6.5 percent, the U.S. economy has been accelerating from 0.18 percent to about 3.8 percent. The main issue is fundamental,” Wang stated.

Stage four started from the beginning of August. On August 3, the People's Bank of China (PBOC) imposed a 20-percent reserve requirement ratio on the trading of foreign-exchange forward contracts. On August 25, the central bank resumed its "countercyclical factor" to adjust the way it calculates the yuan's daily reference rate against the U.S. dollar.

The RMB has been strengthening in Friday's trading. The PBOC set the yuan's midpoint at 6.86 per U.S. dollars prior to market opening. That was 0.4 percent firmer than the previous fix and the strongest since December 6. The on-shore yuan on Friday rebounded to a near three-week high against the U.S. dollar.

A former senior official at the State Administration of Foreign Exchange, Guan Tao, said recently that the yuan was expected to remain fundamentally stable over a period of time. That is because the currency fluctuation is determined by economic fundamentals and the economy will likely remain healthy, according to Guan.

“For the first half of the coming year, the situation will be difficult for RMB. And maybe for the second half of year, the condition will be a little easier,” Wang said.

“Theoretically, the yuan still has two or three percentage point downside room, because the current level has not yet reflected the economic change fully,” he noted. “Compared to the second quarter of 2015, the economic growth decreased by 7.1 percent while the exchange rate index only dropped by about 6.7 percent. Usually, the exchange rate should fluctuate more drastically then the economic performance. 

However, he is positive on the long-term performance. “For one, the internationalization of RMB has been continuing on the stable progressing mode. And right now the share of RMB in international payments is over two percent. That's seven times higher than 2012.”