PBOC is expected to set the USD/CNY reference rate at 6.7946 – Reuters estimate
At a Glance
The desk sees the PBOC's upcoming USD/CNY reference rate setting as a pivotal moment for the yuan, particularly in light of Goldman Sachs' assertion that the currency is currently undervalued by about 20%. Per the full note source, the anticipated fixing at 6.7946 will be closely monitored as it reflects the central bank's stance on currency stability amidst ongoing global economic pressures. With the PBOC's discretion in setting the midpoint based on various economic indicators, this fixing could signal their intent to manage depreciation risks or indicate a tolerance for a weaker yuan. The consensus among major firms suggests a range of targets that reflect varying views on the yuan's trajectory, with Goldman Sachs projecting a stronger CNY at 6.50 within a year, diverging from other estimates.
Full Analysis
What the desk is arguing
The desk posits that the PBOC's reference rate setting will serve as a critical indicator of its monetary policy direction regarding the yuan. This comes as Goldman Sachs has raised its forecasts, suggesting a significant undervaluation of the yuan, which could lead to a stronger CNY in the future.
The anticipated fixing at 6.7946, as reported, is crucial as it will either reinforce or challenge market expectations about the PBOC's intervention strategy. The central bank's ability to influence the yuan's value through its daily fixing is a key element in managing capital flows and economic stability.
Where it sits in our coverage
Our consensus target for USD/CNY is 6.80, with a range reflecting diverse views across firms. Notable targets include: - goldman: 6.50 - jpmorgan: 6.75 - bofa: 6.90
This view aligns closely with goldman, which is at the lower end of the spectrum with a more bullish outlook on the yuan, while bofa holds a more bearish stance, indicating a potential divergence in market sentiment.
How other firms see it
Firms like goldman and jpmorgan are aligned in their bullish outlook on the yuan, suggesting a stronger currency ahead. In contrast, bofa takes a more cautious approach, anticipating continued pressure on the yuan.
Investors should also keep an eye on related pairs such as EUR/USD and AUD/CNY, as shifts in these currencies could reflect broader market sentiment influenced by the PBOC's policy decisions.
What the calendar says
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From the original
Earlier: Goldman Sachs says yuan 20% undervalued, lifts forecasts to 6.50 in a year - The People’s Bank of China is due to set the daily USD/CNY reference rate at around 0115 GMT (2115 US Eastern time), a fixing that remains one of the most closely watched signals in Asian foreig
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4 itemsPBOC is expected to set the USD/CNY reference rate at 6.7945 – Reuters estimate
The desk anticipates a USD/CNY reference rate set by the PBOC at approximately 6.7945, reflecting the central bank's nuanced approach to managing the yuan amid fluctuating global conditions. Per the full note from Eamonn Sheridan at investinglive.com, this fixing is critical as it signals the PBOC's stance on currency stability and competitiveness. The current trading band allows for a 2% fluctuation around the midpoint, which the PBOC adjusts daily based on various economic indicators. With the yuan's performance closely tied to broader international FX dynamics, traders should remain vigilant about potential interventions from the PBOC, especially in response to shifts in US dollar strength or domestic economic pressures.