Bias: bearish-to-range-bound, current USD/CNY sits below the 90-day average and at the lower end of the 3-month range.
Key drivers:
- Rate gap: Markets expect the US Fed to ease policy later this year, narrowing the gap with China’s policy stance and limiting USD upside on improving economic signals.
- Risk/commodities: Oil remains volatile and risk appetite swings; calmer oil markets can ease USD pressure on the yuan, while sharper moves could amplify volatility.
- Macro factor: The PBOC continues to stand behind the yuan, with offshore yuan bills in Hong Kong aimed at absorbing liquidity and stabilizing the currency.
Range: Expect the pair to drift toward the middle of the 3-month range, with mild swings around that level and occasional brief tests of the lower boundary.
What could change it:
- Upside risk: unexpected strength in US data or a hawkish tilt from the Fed could keep USD firmer against the yuan and push the pair higher.
- Downside risk: additional yuan-supportive policy actions by the PBOC or surprise improvement in Chinese data could strengthen the yuan.
