Chinese Yuan: Appreciation constrained by PBoC resistance – Societe Generale

USD/CNY is expected to reach a low of 6.60 in 1Q27, according to Societe Generale analysts Frank Benzimra, Michelle Lam and Kiyong Seong. They see the renminbi approaching its peak as the PBoC resists one-sided CNY appreciation, pointing to higher FX reserve requirements and possible adjustments to the fixing as key policy levers. Meanwhile, domestic liquidity conditions and subdued inflation provide scope for Chinese rates to edge lower.

PBoC policy tools point to a ceiling on CNY gains

"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.)