PBOC is expected to set the USD/CNY reference rate at 6.8087 – Reuters estimate

What the desk is arguing

The desk posits that the PBOC's expected setting of the USD/CNY reference rate at 6.8087 reflects a strategic intent to mitigate depreciation pressures on the yuan. This comes at a time when the PBOC is navigating complex domestic economic conditions and external pressures, particularly from the US dollar's strength.

The PBOC's daily fixing is not merely a technical reference; it serves as a policy signal. A stronger-than-expected midpoint could indicate the central bank's desire to support the yuan, especially in light of capital flow concerns and growth momentum. The current context suggests that the PBOC is likely to intervene if the yuan approaches the edges of its trading band.

Where it sits in our coverage

Our consensus target for USD/CNY is 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This view aligns with jpmorgan, which sees potential for a stronger yuan, while bofa presents a more bearish outlook, suggesting divergence in market sentiment regarding the yuan's trajectory.

How other firms see it

Firms like jpmorgan and citi are aligned with the desk's view, anticipating a stable or stronger yuan in the near term. In contrast, bofa holds a contrary position, expecting further depreciation pressures on the currency.

Traders should also keep an eye on the EUR/USD trajectory, as shifts in European monetary policy could influence USD strength and, consequently, the USD/CNY dynamics. Additionally, the upcoming Fed meetings may provide further context for USD movements and their impact on the yuan.