Outlook
The yuan is likely to stay in a narrow trading band in the near term. PBOC policy easing, including rate cuts on structural tools and a large private-enterprise facility, supports domestic credit and growth but tends to cap rapid yuan gains. Markets are also weighing a gradual yuan appreciation path, with daily reference rates kept below 7.00 to prevent exporters from being squeezed by fast moves. A potential U.S. rate cut later this month could push the dollar lower, providing a supportive backdrop for the CNY. Recent flows into yuan and ongoing internationalization efforts should help contain volatility. The yuan has also traded near multi-month highs vs the USD, reflecting a mix of domestic stimulus and favorable external sentiment. For transactions, expect limited volatility in the coming weeks, with attention on policy signals and U.S. rate expectations.
Key drivers
- PBOC monetary policy adjustments: On January 15, 2026, rate reductions on structural policy tools and a CNY 1 trillion facility to back private firms aim to lift credit in key sectors and keep policy “moderately loose,” potentially weighing on the yuan if growth outpaces money-market expectations.
- Controlled yuan appreciation: The PBOC has guided a gradual strengthening by setting daily reference rates below 7.00, signaling a preference for steady gains rather than sharp moves.
- Capital flow management: December 2025 saw banks selling a record USD 99.9 billion of FX back into the yuan, supporting stability amid global uncertainty and strengthening the currency’s return resilience.
- Internationalization efforts: Initiatives like CIPS expansion and digital yuan rollout are intended to broaden yuan use in global trade and finance, supporting long-run currency stability.
- Global policy divergence: Markets expect a U.S. rate cut later this month; if realized, a softer USD could bolster the yuan, though gains are likely to be moderated by the PBOC’s cautious appreciation stance.
Range
CNY to USD at 0.1447 is 1.4% above its 3-month average of 0.1427, having traded in a very stable 3.1% range from 0.1405 to 0.1449
CNY to EUR at 0.1219 is near its 3-month average, having traded in a very stable 3.7% range from 0.1195 to 0.1239
CNY to GBP at 0.1060 is near its 3-month average, having traded in a very stable 3.8% range from 0.1039 to 0.1078
CNY to JPY at 22.10 is near 14-day lows, just 0.8% below its 3-month average of 22.28, having traded in a quite stable 4.8% range from 21.76 to 22.81
What could change it
- Surprise PBOC policy shift: A faster or stronger policy easing path, or a shift toward a less flexible reference-rate framework, could soften the yuan further or allow more sustained gains.
- U.S. policy changes: A larger-than-expected Fed cut, or unexpected hawkish data, could push the dollar lower or higher and alter yuan direction accordingly.
- Domestic data surprises: Stronger-than-expected Chinese growth, inflation, or credit metrics could support the yuan; softer data could pressure it.
- Capital-flow shifts: Sudden changes in cross-border capital flows due to risk appetite, trade developments, or regulatory actions could widen intraday ranges.
- Global integration developments: Accelerated CIPS/digital yuan uptake or policy steps promoting yuan use in trade could lend ongoing support to the currency beyond the near term.
