Chinese Yuan: PBoC resistance caps appreciation – Societe Generale

Societe Generale analysts Frank Benzimra, Michelle Lam and Kiyong Seong argue that the renminbi is nearing its peak as the PBoC pushes back against one-sided CNY strength. They expect USD/CNY to bottom at 6.60 in 1Q27, citing higher FX reserve requirements and potential fixing adjustments as key tools. Domestic liquidity and low inflation support slightly lower Chinese rates.

PBoC tools signal CNY appreciation cap

"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.)