Contributor: Currency Hedger | Market Analysis: Louis Roche, Today Markets

The Chinese yuan remains in focus as Beijing pushes back against claims that its currency is undervalued, arguing that China’s export strength reflects industrial competitiveness rather than exchange-rate manipulation. The policy message comes amid growing trade tensions with the European Union, renewed scrutiny of China’s external balances and questions about the strength of the domestic economic recovery.

USD/CNH is reported to be trading near 6.70, with USD/CNY also around 6.70 after a modest decline in the onshore pair. The near-term outlook will depend on how markets interpret China’s currency policy, the outlook for domestic demand and the risk of additional trade restrictions from Europe.

Although the People’s Bank of China (PBoC) is signalling its intention to defend its policy position, subdued credit demand and the recent decline in foreign exchange reserves suggest that underlying economic and market pressures remain relevant. For the coming sessions, the yuan’s direction is likely to reflect a balance between policy management, trade developments and broader US dollar momentum.

Market Snapshot

Figures and policy developments are based on the supplied report and should be checked against current market data before publication.

Fundamental Outlook: China Pushes Back Against Currency Pressure

PBoC rejects claims of yuan undervaluation

The People’s Bank of China has rejected the argument that the yuan is undervalued and responsible for China’s export competitiveness. Instead, the central bank points to industrial capacity and competitiveness, while arguing that exchange rates do not have a simple, direct relationship with the current account balance.

The statement is important because currency policy is becoming increasingly intertwined with international trade negotiations. European officials have raised concerns about trade imbalances, while calls for stronger measures to protect domestic industries could increase scrutiny of China’s exchange-rate arrangements.

For the yuan, the immediate implication is that Beijing is seeking to shape the policy debate before external pressure translates into formal demands for currency adjustment. However, the statement alone does not guarantee yuan appreciation or rule out further currency weakness if domestic economic conditions deteriorate.

Greater IMF transparency could influence sentiment

China has announced plans to begin reporting foreign exchange operation data to the International Monetary Fund from 2027. The change could be interpreted as a step towards greater transparency amid international scrutiny of the country’s currency policies.

The announcement may help address some concerns about the visibility of official foreign exchange activity. Nevertheless, its market impact is likely to depend on the scope of the reporting, the information disclosed and whether it changes investors’ assessment of how the PBoC manages the yuan.

In the near term, traders are likely to focus more on actual exchange-rate movements and evidence of policy intervention than on a reporting change that is not scheduled to begin until 2027.

Falling reserves highlight a more complicated backdrop

China’s foreign exchange reserves reportedly declined to USD 3.40 trillion at the end of September, compared with USD 3.44 trillion in August and a consensus forecast of USD 3.43 trillion.

The reduction is relatively modest, and valuation effects can influence the reported total without necessarily indicating substantial intervention or capital outflows. The supplied report attributes part of the decline to valuation effects associated with weaker gold prices.

The reserves figure should therefore be assessed alongside other indicators, including capital flows, the PBoC’s daily yuan reference rate, domestic credit conditions and broader market demand for Chinese assets.

The more significant concern is the combination of sluggish credit demand and an investment-led policy push that has yet to generate a broader economic rebound. If domestic demand remains weak, expectations for further policy support could persist, potentially complicating the yuan’s outlook.

Trade Tensions and the Outlook for the Yuan

The dispute over China’s currency valuation is developing alongside a broader debate about Chinese export strength and European industrial competitiveness. If the European Commission adopts more assertive trade measures, uncertainty around China–EU economic relations could weigh on sentiment towards Chinese assets.

The currency implications are not necessarily one-directional. Increased trade tensions could weaken the yuan through concerns about export demand, investment and capital flows. Conversely, a stronger policy response from Beijing or improved domestic economic data could support the currency.

The yuan’s performance will also depend on the relative strength of the US dollar. Even if Chinese policy settings remain broadly stable, a broad dollar rally could push USD/CNH higher. A softer dollar environment, by contrast, could help the yuan strengthen without requiring a major shift in domestic policy.

Technical Outlook: USD/CNH Near 6.70

With USD/CNH reported near 6.70, the pair is trading at a level where confirmation from price action is needed before establishing a stronger directional view. The supplied report does not provide a sufficiently detailed technical chart to verify precise support and resistance levels, so the outlook should focus on the key psychological level and the direction of the next confirmed move.

Bullish scenario for USD/CNH

If the US dollar strengthens broadly, Chinese domestic demand disappoints or trade tensions intensify, USD/CNH could move higher from the 6.70 area.

A sustained move above 6.70 would need confirmation from price action and broader dollar performance before signalling a more durable advance. Traders should also monitor whether the PBoC’s daily reference rate and other policy signals appear consistent with allowing further yuan weakness.

Bearish scenario for USD/CNH

If the dollar loses momentum, Chinese economic indicators improve or policy signals support yuan stability, USD/CNH could move lower.

A sustained decline below 6.70 would indicate yuan appreciation against the dollar, although the strength of that move would depend on whether it is supported by broader market flows rather than a short-lived adjustment.

Neutral scenario

If Chinese policy signals remain stable and trade developments produce no immediate escalation, USD/CNH could consolidate around 6.70. In this scenario, traders may wait for clearer evidence from US dollar movements, Chinese economic data and developments in China–EU trade relations before establishing stronger directional positions.

USD/CNH Forecast for the Coming Sessions

The near-term outlook for USD/CNH is neutral, with policy and trade risks keeping volatility elevated. The PBoC’s rejection of undervaluation claims indicates that Beijing intends to challenge external pressure over its exchange-rate policy, but it does not establish a clear directional signal for the yuan.

Three factors are likely to shape the next move:

• US dollar momentum: A broad dollar advance could push USD/CNH higher even without a change in Chinese policy.
• Domestic economic conditions: Weak credit demand or disappointing growth indicators could increase expectations for further support and place pressure on the yuan.
• Trade and policy developments: More confrontational EU measures could create uncertainty for China’s export outlook, while signs of stable policy management could help limit currency volatility.

A move above 6.70 would place the focus on whether dollar strength can be sustained. A move below that level would suggest improving yuan performance, particularly if accompanied by stronger Chinese data or a softer US dollar.

The key consideration is whether China’s policy messaging is reinforced by improving economic conditions. Until that becomes clearer, a cautious, data-dependent approach is preferable to assuming that the PBoC’s statement will determine the yuan’s direction.

Analysis — Louis Roche, Today Markets

China’s response to claims of yuan undervaluation is as much about trade diplomacy as it is about currency markets. By attributing export strength to industrial competitiveness, the PBoC is challenging the idea that exchange-rate adjustment alone can resolve international trade imbalances.

The planned reporting of foreign exchange operations to the IMF from 2027 may be a constructive step towards transparency, but the immediate market impact is likely to remain limited. Investors will continue to assess the yuan through the combination of domestic economic performance, official policy signals, capital flows and the direction of the US dollar.

The decline in reserves to USD 3.40 trillion deserves attention, but it should not be interpreted in isolation. Valuation effects can influence reserves, and the reported reduction does not by itself establish the scale or direction of any currency intervention. More important is whether weak credit demand and subdued domestic activity continue to constrain confidence in the economic recovery.

My near-term view is neutral for USD/CNH around 6.70. A stronger US dollar or a deterioration in China’s domestic outlook could lift the pair, while improving Chinese data, reduced trade uncertainty or broad dollar weakness could support yuan appreciation. The next decisive move is likely to depend on confirmation from economic data and price action rather than the PBoC’s policy statement alone.

Currency Hedger View

The yuan is influenced by domestic policy decisions, international trade developments and movements in the US dollar. Businesses with exposure to Chinese suppliers, customers or yuan-denominated payments should monitor these factors when assessing conversion timing and managing currency risk.

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Disclaimer

This material is provided for informational and market commentary purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. Market views and scenarios are conditional and may change as new information becomes available. Foreign exchange and leveraged trading involve significant risk. Readers should conduct their own research and consider their financial circumstances before making decisions.