Bias
Neutral-to-bullish for the yuan over the medium term, with a gradual move toward around 7.00 per USD by end-2026. Near-term moves are expected to remain within a tight range as policy support from the PBOC and banks’ forecasts anchor sentiment.
Key drivers
- PBOC actions to defend the yuan: offshore yuan bills in Hong Kong aimed at absorbing liquidity and reducing downward pressure, after the yuan softened to the central parity near 7.0197 on January 8.
- Fed policy expectations: Jerome Powell signaled a cut could come later; markets are pricing rate cuts, which tends to weaken the USD and can support EM currencies like the CNY.
- Bank forecasts reinforcing a weaker USD/CNY bias: Goldman Sachs and ING expect yuan strength beyond the 7.00 level by end-2026; RBC Capital Markets also sees USD/CNY drifting toward 7.00 by end-2026.
- China growth and stimulus backdrop: stimulus measures and a improving growth backdrop have supported sentiment and helped the yuan outperform at times, alongside a risk-on environment and a fragile truce in trade tensions.
- Current price action and cross-asset context: the yuan has held a 90-day range around USD/CNY 6.97–7.13 (0.1403–0.1436 USD per CNY); other pair readings show yuan around 0.1234 EUR per CNY, 0.1070 GBP per CNY, and 22.71 JPY per CNY, all modestly above their 3-month averages, indicating a broadly stable backdrop with selective firmness vs some peers.
Range
USD/CNY is roughly 6.97–7.13 (0.1403–0.1436 USD per CNY). CNY also trades around 0.1234 EUR per CNY, 0.1070 GBP per CNY, and 22.71 JPY per CNY, each about 1–3% above their 3-month averages.
What could change it
- Policy shifts by the PBOC: any surprise tightening or accelerated easing could alter the path toward 7.00 and push the range higher or lower.
- U.S. policy surprises: bigger or smaller-than-expected Fed rate moves, or shifts in the dollar outlook, would impact USD/CNY.
- Data surprises: stronger or weaker Chinese economic data (growth, inflation, external demand) or US data that shifts risk appetite could move the pair.
- Trade developments: a fresh escalation or de-escalation in US-China trade tensions would affect sentiment and the yuan.
- Global risk sentiment: a sustained risk-on or risk-off regime would influence capital flows and the CNY’s direction relative to the USD and other major currencies.
