CNY: Range-Bound with Slight Downside Bias vs USD – UOB

UOB analyst Quek Ser Leang noted in his latest commentary that USD/CNH currently lacks a clear direction, with virtually no change in exchange rate momentum. The pair traded narrowly around 6.71 previously, and on an intraday basis, it is expected to consolidate within a range of 6.7060 to 6.7160.

**Lack of Breakout Momentum in the Near Term**

Market reports indicate that recent offshore yuan exchange rates have been influenced by multiple intertwined factors, trending toward range-bound fluctuations. On one hand, the external strength of the US dollar exerts some pressure on the yuan; on the other hand, expectations of domestic exchange rate stabilization policies provide support. Against this backdrop, USD/CNH finds it difficult to establish a one-sided trend, with thin short-term trading and limited volatility.

**Policy Provides Bottom-Line Support**

Reviewing recent policy moves, the People's Bank of China reinstated the counter-cyclical factor in August 2018 to address pro-cyclical market behavior. According to UOB's previous research reports, the offshore yuan exchange rate showed notable volatility following the announcement of this measure. Currently, although tools such as the counter-cyclical factor have returned to neutral, market expectations that the central bank will maintain basic exchange rate stability remain, which to some extent limits the downside space for the yuan.

**External Variables to Watch Ahead**

Looking ahead, the Federal Reserve's monetary policy direction and changes in the US dollar index remain key external factors influencing the yuan exchange rate. If US economic data or Fed statements boost rate hike expectations, the dollar may strengthen periodically, exerting short-term depreciation pressure on the yuan. However, as domestic economic fundamentals gradually recover, the yuan exchange rate is expected to find support upon reaching key levels, with overall movement remaining primarily two-way and fluctuating.