Chinese Yuan: Appreciation constrained by PBoC resistance – Societe Generale

With the PBoC resisting one-sided CNY appreciation, the renminbi is approaching its peak, according to Societe Generale analysts Frank Benzimra, Michelle Lam and Kiyong Seong. Higher FX reserve requirements and possible fixing adjustments are central to their forecast that USD/CNY will reach a trough of 6.60 in 1Q27. Meanwhile, domestic liquidity conditions and subdued inflation favour a modest decline in Chinese rates.

Do PBoC Policy Tools Point to a Cap on 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.)