Macquarie Group forecasts China's onshore yuan could strengthen to as much as five yuan per dollar if local firms unwind massive dollar holdings. The call comes as Chinese companies accelerate foreign-exchange conversions, helping the yuan strengthen past the seven-per-dollar level faster than expected despite broader dollar strength.

Economists led by Larry Hu estimate Chinese firms have amassed $800 billion in dollar positions through carry trades. They note yuan appreciation likely reflects broad dollar weakness rather than stronger Chinese fundamentals, unless exports falter and Beijing ramps up stimulus, potentially triggering a sharp rally in the currency.

A reversal of these carry trades would mark a shift in the yuan from dollar-driven to supported by domestic factors. Macquarie believes if China's domestic demand strengthens through stimulus, the yuan carry trade will unwind as the US-China yield gap narrows, allowing the currency to appreciate more forcefully against the dollar.