China's Yuan May Edge Higher vs Dollar if Support Holds - UOB

UOB strategists Quek Ser Leang and Lee Sue Ann noted in their latest analysis that downside momentum for USD/offshore yuan has slightly strengthened after pulling back from recent highs. As of writing, USD/offshore yuan traded near 6.67256, without a firm break below key support.

**Short-term technical bias tilts lower**

The bank expects the dollar to edge lower over the next 24 hours, but downside may be limited. 6.6530 is viewed as a strong support level; as long as the exchange rate holds above this level, the current mild decline remains within the scope of a technical correction. Resistance above sits at 6.6720, close to the current price, suggesting bulls and bears may contest around this area. A subsequent break below 6.6530 could open deeper adjustment space.

**Mixed fundamental factors**

The yuan has recently shown some resilience. Market reports indicate that China's strong exports and large trade surplus continue to support the yuan, with corporate FX conversion demand also being released. However, external pressures cannot be ignored. As previously reported, the Federal Reserve resumed rate hikes in 2023, and the deeply inverted China-U.S. interest rate differential poses challenges for the yuan. Additionally, concerns over risk spillover from China's property sector and the potential impact of pandemic resurgences on economic growth have limited the yuan's appreciation pace. These factors keep the yuan fluctuating within a range with resistance above and support below.

**Market watches for policy signals ahead**

Analysts believe the People's Bank of China has shown clear intent to stabilize the exchange rate through tools such as the daily fixing. As Mizuho Bank's chief Asian FX strategist Ken Cheung previously commented, given the central bank's firm resolve to maintain stability, the exchange rate may stay relatively stable within a certain range. Overall, UOB's short-term forecast frames the immediate fluctuation range for USD/offshore yuan, and the market will closely watch the testing of the 6.6530 support and 6.6720 resistance levels.