National Bank of Canada (NBC) strategists Stéfane Marion and Kyle Dahms argue that the Chinese Yuan's (CNY) strength reflects more than US Dollar (USD) softness, pointing to growing energy-settlement flows and improving Chinese manufacturing and Producer Price Index (PPI) data. They expect further, but controlled, CNY appreciation as the People's Bank of China (PBoC) tolerates gradual gains to contain imported inflation and support confidence, while avoiding one-way moves that could hurt exporters or spur speculation.

Petro‑flows and industry back yuan

"The yuan has continued to strengthen, with USD/CNY now near multi-year lows on a quarterly-average basis. In our view, this reflects more than broad USD softness."

"We continue to see scope for CNY strength, though the move is likely to remain managed rather than disorderly."

"For policymakers, this is a more comfortable mix. Stronger manufacturing activity and firmer PPI reduce the urgency for aggressive easing, while a stronger yuan can help contain imported inflation, particularly in energy."

"The PBoC is therefore likely to tolerate gradual appreciation, especially if it supports broader financial stability and reinforces confidence in the currency’s international role. That said, authorities are unlikely to welcome a one-way move that undermines exporters or invites speculative positioning."

"But absent a sharper slowdown, we would expect the bias to remain toward a stronger, though still carefully managed, yuan."

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