Outlook
The yuan has drawn support from ongoing PBOC policy action and speculative expectations that it will strengthen into 2026. After the central parity was nudged to 7.0197 per USD on January 8, markets are watching for direction. In the medium term, big-name banks see the yuan moving toward the 7.00 level by end-2026 as yield differentials narrow and trade tensions ease. Markets also note that a softer U.S. dollar helped by potential Fed rate cuts could provide another lift for CNY. Recent yuan strength against the dollar and supportive domestic stimulus have underpinned a more favorable backdrop for CNY, even as near-term moves can be noisy.
Key drivers
- PBOC offshore liquidity support in Hong Kong to absorb excess liquidity and cap downward pressure on the yuan.
- Global forecasts for yuan strength beyond the 7.00 per USD mark by year-end 2026 from Goldman Sachs and ING.
- RBC Capital Markets’ view that USD/CNY could trend toward 7.00 by end-2026, aided by trade surpluses, low Chinese inflation, and a stable policy stance.
- U.S. policy expectations, including Powell’s openness to rate cuts, which could weaken the U.S. dollar and help the yuan.
- Recent domestic backdrop: yuan strength to a multi-month high against the dollar amid stimulus-led upside in equities and resilience in China’s economy, including outturns that support a more stable growth trajectory.
- Price action context: CNY/USD around 0.1436, just above its 3-month average (0.1418) and within a narrow range; CNY likewise showing modestly firmer levels versus EUR, GBP, and JPY in the latest data.
Range
CNY to USD 0.1436, just above its 3-month average of 0.1418, with a very stable 3-month range from 0.1403 to 0.1437.
What could change it
- A shift in PBOC policy stance or unexpected liquidity moves, especially offshore, that alter demand for the yuan.
- A stronger or weaker U.S. dollar driven by Fed policy changes, or shifts in global risk sentiment affecting capital flows.
- Larger-than-expected Chinese macro data or policy signals that alter the growth-inflation mix and the perceived need for stimulus.
- Escalation or resolution of trade tensions affecting external demand and yield differentials.
- Significant changes in HK offshore yuan supply or liquidity conditions that impact yuan pricing near the 7.00 level.
