China's Central Bank Curbs Yuan Appreciation; Year-End Exchange Rate Expected to Hold Near 6.68
nashnova research
After a nearly twenty-month rally that lifted it roughly 9% to a three-and-a-half-year high, the yuan is being actively reined in by the PBOC through its daily fixing and state-bank intervention — institutions expect the year-end rate to settle near 6.68.
How is the PBOC hitting the brakes?
Since November 2025 the PBOC has consistently set its daily fixing — the official reference rate around which the market trades — below market expectations, with the gap widening further in August.
This means → even as a weaker dollar should theoretically push the yuan higher, the central bank deliberately refuses to follow, keeping the fixing flat.
HSBC reads this "flat fixing" as a signal that authorities are satisfied with the current level.
At the same time, several large state-owned banks have repeatedly bought dollars on the onshore spot market, directly capping yuan gains.
Why is trading volume shrinking?
Average daily onshore spot turnover fell to $31.2 billion in August, down from $42.2 billion in July and $39.9 billion a year earlier.
The FX settlement ratio — a gauge of how willing households and firms are to convert dollars into yuan — dropped in July to its lowest in nearly eighteen months.
In plain terms = neither corporates nor households are rushing to swap dollars for yuan, a clear sign that expectations for further appreciation have cooled sharply.
Where do banks see the year-end rate?
The median forecast from over a dozen global banks including Goldman Sachs and Morgan Stanley puts year-end at roughly 6.68, barely changed from 6.72 on August 31; HSBC's target is also 6.72.
JPMorgan Asset Management strategist Zhu Chaoping said the yuan is indeed undervalued, but "in the context of stabilizing growth and employment, authorities won't fully let it appreciate freely in the near term."
This means → even if room for gains exists, the magnitude will be limited — capital outflows driven by low interest rates are a key constraint.
How undervalued is the yuan, really?
The IMF estimated in February that the yuan may be undervalued by as much as 20%, though China disputes the methodology.
German Chancellor Friedrich Merz has criticized Beijing for deliberately suppressing the exchange rate, calling it unfair to German industry.
PBOC Governor Pan Gongsheng responded in March: "China has neither the need nor the intention to gain trade advantage through currency depreciation."
Yuan medium-term direction — appreciation or stability?
BULL
Trade surplus momentum
A record surplus exceeding $1 trillion keeps pushing the yuan higher.
Goldman sees 6.4
Goldman forecasts USD/CNY at 6.4 in twelve months — about 5% appreciation.
BEAR
Weak domestic demand
Leading indicators for lending and consumption keep falling — inconsistent with a strong currency.
Low rates drive outflows
The rate differential works against the yuan, giving authorities ample reason to hold steady.
In plain terms = the trade surplus is pulling the yuan up while weak demand and low rates drag it down — whichever side of that tug-of-war snaps first will mark the next turning point.
What does this mean for ordinary investors?
BCA Research chief strategist Peter Berezin put it bluntly: "I don't see a scenario where China allows the yuan to appreciate significantly against the dollar or other currencies."
This reflects the authorities' core trade-off: protecting exporters and employment takes priority over letting the exchange rate follow market supply and demand.
In plain terms = the yuan is most likely to fluctuate in a narrow 6.6–6.7 band in the near term; a bet on sharp appreciation lacks policy support for now.
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