CNY: Gradual Appreciation Bias Against USD, Key Levels in Focus — OCBC

In their latest analysis, OCBC FX strategists Shen Maoxiong and Huang Junjie noted that the yuan and offshore yuan remain supported by broad dollar weakness and exporters' settlement demand, but the recent pattern of the People's Bank of China's (PBoC) daily fixing is clearly signaling to the market a preference for a gradual, rather than rapid, appreciation.

**Central Bank Guides a "Slow Grind" Pace**

Analysts believe that, based on the recent trajectory of the fixing rate, authorities do not want to see one-sided, rapid appreciation expectations form. Although market forces are pushing the yuan stronger, the official guidance rate tends to be slightly below market forecasts, serving to flatten the slope of appreciation. This operational approach aims to provide a more stable exchange rate environment for exporters while avoiding excessive short-term capital inflows. OCBC emphasizes that the market should closely monitor the pace signals from the fixing rate, which will be key to gauging the short-term exchange rate space.

**External Environment Provides a Tailwind**

The yuan's modest appreciation is supported by external factors. Recently, due to market reassessments of U.S. economic policy uncertainty and the Federal Reserve's future rate path, the dollar index has been relatively weak, offering a rebound window for non-dollar currencies broadly. In this context, the yuan exchange rate has been able to maintain a steady, slightly firmer stance amid two-way fluctuations. However, OCBC strategists also caution that although the yuan has rebounded significantly from earlier lows, from a long-term or structural valuation perspective, external views may still differ, but this does not hinder the current gradual appreciation trend in the short term.

**Short-Term Key Level Battle**

In market trading, the dollar-yuan (offshore) is currently trading around 6.72266. OCBC believes that if the dollar continues to face pressure, the yuan could further test support below, but the process may still be characterized by choppy, repeated fluctuations. Exporters' settlement flows and potential bargain-hunting demand for dollars will engage in a tug-of-war, and the exchange rate's performance at key technical levels will serve as an important observation window to validate the central bank's policy intentions and market momentum.