Chinese Yuan: Gains Capped by PBoC Resistance – Societe Generale

USD/CNY is expected to bottom at 6.60 in 1Q27. Societe Generale analysts Frank Benzimra, Michelle Lam and Kiyong Seong see the renminbi approaching its peak as the PBoC resists one-sided CNY appreciation. Their forecast highlights higher FX reserve requirements and possible fixing adjustments as key policy tools. Meanwhile, domestic liquidity conditions and subdued inflation provide scope for slightly lower Chinese rates.

PBoC policy tools point to ceiling for CNY appreciation

"The PBoC’s increasingly explicit resistance to one-sided appreciation supports our forecast for USD/CNY to bottom at 6.60 in 1Q27."

"The clearest policy response so far has been the increase in the FX RRR from 4% to 6%."

"A further increase to 8%, combined with a higher USD/CNY fixing, would send a strong signal of resistance to further CNY appreciation."

"We have developed a CNY Fixing Lean Index to track this policy signal."

"Supportive domestic liquidity and subdued inflation also leave room for Chinese rates to grind modestly lower, although low starting yields limit the opportunity for offshore investors."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)