CITIC Securities: Policy-Preferred Range for the Yuan May Be 6.6–7.0
Nashnova编辑部
CITIC Securities reverse-engineers the PBOC's own language to estimate a policy comfort zone of 6.6–7.0 for the yuan; the pricing driver has shifted from rate differentials back to trade surpluses, but a deep yield gap still caps the pace of appreciation.
Where does the "6.6–7.0 sweet spot" number come from?
The PBOC previously stated the exchange rate sits "in the median range of recent years." CITIC worked backward from that language: measured against the post-reform historical band, the median falls between 6.6 and 7.0.
This means → The central bank did not draw an explicit line. CITIC reverse-engineered the wording — the policy comfort zone is roughly this band.
In plain terms = The PBOC said "we're in the middle"; CITIC asked "middle of what?" and got 6.6 to 7.0.
Is the "yuan is undervalued" argument solid?
Recent claims lean on models that over-weight trade items. Absolute purchasing-power parity suggests the yuan is undervalued by about 37% (roughly 24% after adjusting for GDP per capita) — but that gap mostly reflects non-tradable-goods cost differences, not exchange-rate distortion.
On an export-competitiveness basis, the yuan is undervalued by only about 1% — effectively negligible.
CITIC stresses: model-derived valuations carry more theoretical than practical weight. In reality the rate is shaped by pro-cyclical settlement flows, capital-account controls, and fixing-rate guidance — no single formula captures it.
Why has the pricing driver flipped from rates back to trade?
The Sino-U.S. rate differential explained 88% of yuan moves in 2022–2024; since 2025 that figure has collapsed to 1%. Meanwhile the rolling-surplus correlation has climbed to 0.50 and is highly significant.
The year-by-year correlation between the exchange rate and the rate gap flipped from −0.97 to +0.94 — a complete reversal.
This means → The "rate differential drives the yuan" thesis of the past three years is dead. The trade surplus is once again the yuan's anchor.
The 12-month rolling goods-trade surplus has hit a record $1.19 trillion, providing near-term fundamental support.
How much room is there to appreciate — and what's capping the slope?
A deep Sino-U.S. yield inversion of roughly 300 basis points persists, directly weighing on the speed of appreciation and the opportunity cost of holding yuan.
In plain terms = Holding dollars still earns a yield pickup, so even as the yuan strengthens not everyone rushes to convert — the brake on appreciation is still engaged.
The rolling correlation between the yuan and the dollar index dropped from 0.80 in November 2025 to −0.48 by August 2026 — the third "decoupling" since the FX reform.
This reflects a fading dollar-index grip on the yuan; the currency is increasingly driven by its own fundamentals.
What tailwinds are coming from abroad?
In late July the U.S. and Japan jointly bought yen for the first time in roughly 28 years. Washington purchased yen using euros and linked the operation to the Fed's FIMA repo facility — in effect protecting the Treasury market and fiscal sustainability.
The 30-year U.S. Treasury yield touched 5.34%, the highest in nearly 19 years. Combined with Treasury buybacks, this reinforces a "fiscal dominance" narrative.
This means → Concerns over dollar credibility are building, capping dollar-index rebounds — a tailwind for the yuan.
What is the settlement-flow picture — are corporates converting or waiting?
Outstanding unsettled dollar holdings at banks stand at roughly $760 billion, with an average entry cost around 7.16.
CITIC calculates a static break-even rate of about 6.57 and a dynamic carry-cost line of about 6.79. The spot rate sits between the two — conversion willingness rises step by step as spot strengthens.
Yet corporates added $42.4 billion in fresh dollar hoarding in July, showing that the tug-of-war between converting and holding continues.
The report suggests tracking three threads: the pace of settlement-flow volumes, the interplay between long-end Treasuries and Treasury buybacks, and follow-through on yen intervention — to gauge whether the appreciation slope can steepen further.
Content is for reference only, not financial advice.