Outlook
The yuan is likely to post a modest appreciation bias over the coming weeks, supported by a policy tilt toward credit support and ongoing currency-management steps. The PBOC’s January actions—a 0.25 percentage point cut in structural policy tools and a CNY 1 trillion facility for private enterprises—signal a moderately loose stance aimed at stimulating credit while avoiding rapid currency gains that could hurt exporters. The central bank’s approach to keeping the daily reference rate below 7.00 reinforces a gradual strengthening path. December 2025 flows, where banks stepped in to push USD back into yuan, contributed to currency stability. China’s push to internationalize the yuan through CIPS and digital yuan expansion adds to a longer‑term depreciation/strengthening narrative depending on global demand for yuan-denominated flows. Markets also price in potential Federal Reserve rate cuts, a dynamic that could support yuan strength if the dollar weakens. China’s economy has shown resilience under stimulus, helping offset property weakness and underpinning a constructive near-term backdrop for the yuan.
Key drivers
- PBOC policy easing and targeted liquidity support, including the private-enterprise facility, to bolster credit and domestic demand.
- Controlled yuan appreciation via a daily reference rate set to limit rapid gains, balancing export competitiveness with currency strength.
- December 2025 FX flows that favored yuan stability, reflecting strong trade surpluses and investor optimism.
- Ongoing yuan internationalization efforts (CIPS and digital yuan) to broaden use in global trade and finance.
- US rate-cut expectations, with markets pricing in easing, potentially supporting the yuan if the dollar softens.
- Chinese macro backdrop of stimulus-led growth and a rebalancing of the economy away from real estate weakness toward broader activity.
Range
CNY/USD at 0.1447 is 1.3% above its 3-month average of 0.1428, having traded in a very stable 3.1% range from 0.1405 to 0.1449
CNY/EUR at 0.1220 is near its 3-month average, having traded in a very stable 3.7% range from 0.1195 to 0.1239
CNY/GBP at 0.1061 is near its 3-month average, having traded in a very stable 3.8% range from 0.1039 to 0.1078
CNY/JPY at 22.12 is just 0.7% below its 3-month average of 22.28, having traded in a quite stable 4.4% range from 21.84 to 22.81
What could change it
- A larger-than-expected shift in PBOC policy (faster or more aggressive easing, or a change in the currency-management stance) that altered interest-rate differentials or FX dynamics.
- A surprise in U.S. monetary policy (faster or higher-than-expected rate cuts, or a pivot in dollar strength) that moves USD broadly.
- A sudden shift in capital flows (stronger or weaker inflows/outflows) driven by risk sentiment, trade developments, or policy changes.
- Significant changes in China’s domestic growth trajectory or real-estate sector stability that alter risk pricing for the yuan.
- Developments in cross-border settlement and global demand for yuan-denominated assets that drive broader adoption or reversals.
