USD/CNH bounced from a one-year-plus low as the PBOC set a higher-than-expected fixing, signaling managed support for yuan appreciation. A stronger Yuan could help China pivot towards consumer-led growth, while the USD/CNH downtrend remains intact, BBH FX analysts report.

PBOC fix supports Yuan appreciation

"USD/CNH is firmer near 7.0670, recovering from yesterday’s one-year-plus low at 7.0540. The People’s Bank of China (PBOC) is managing CNY appreciation expectations with a higher-than-forecast USD/CNY fix. USD/CNY fixing was set at 7.0733 vs. Bloomberg survey estimate of 7.0569. The gap between the fixing and forecast was the most positive (164pips) since February 2022."

"In our view, a continued appreciation in China’s currency could help the country shift its growth model towards consumer spending by boosting disposable income through cheaper imports. In parallel, China can tolerate a stronger currency with limited damage to the manufacturing sector as the yuan remains deeply undervalued. Bottom line: USD/CNH downtrend is intact."