Insights 
VT 
Key Points:
- USD/CNH falls to 7.1989 amid broad dollar weakness and improved Sino-U.S. trade sentiment.
- PBOC sets midpoint at 7.1938, much closer to market expectations than recent months.
The Chinese yuan advanced modestly against the U.S. dollar on Friday, buoyed by global dollar softness and improved market sentiment following the 90-day U.S.-China tariff truce. USD/CNH slipped below 7.20 to trade near 7.1989, while onshore spot yuan also gained, last quoted at 7.2020.
The shift in tone came as major U.S. economic data surprised to the downside earlier in the week, pushing Treasury yields lower and reviving bets for more Federal Reserve rate cuts this year. That pressure on the dollar gave room for EM currencies—including the yuan—to firm.
Reinforcing yuan sentiment, investment banks such as Citi and UBS raised their China GDP forecasts for 2025, citing an expected improvement in trade flows and capital expenditure after the tariff de-escalation.
The People’s Bank of China (PBOC) has also subtly adjusted its guidance. On Friday, it fixed the yuan at 7.1938, marking the smallest gap from Reuters’ model estimates in months. Analysts suggest this is a signal the central bank is aiming to contain one-way bets and maintain currency stability as sentiment shifts.
Strategists at Barclays warn of the potential for large exporter conversions should the yuan break below the 7.15 mark, estimating flows could reach $100 billion—potentially accelerating the path toward 7.00 if not carefully managed.
Still, caution remains warranted. Analysts at Nanhua Futures noted that while short-term sentiment may remain yuan-positive, the currency is likely to resume two-way volatility once optimism fades.
Technical Analysis
The USDCNH pair edged lower through the latter part of the session, slipping from a session high of 7.2155 to close at 7.1989. Price action remains broadly range-bound, but the intraday structure shows a bearish tilt as the pair failed to sustain above the 7.2050 resistance area and slipped below both the 5- and 10-period moving averages on the 15-minute chart.
Picture: USDCNH slips from 7.2155 peak as bearish pressure returns, with support holding near 7.1950, as seen on the VT Markets app
MACD momentum has turned mildly negative, with the signal line crossover supporting the recent decline. Price tested the 7.1950 support area before stabilising marginally. If the pair fails to recover above 7.2000–7.2020, further downside toward 7.1900 cannot be ruled out. However, a breakout above 7.2060 could reintroduce bullish pressure in the short term.
Cautious Forecast
The yuan may continue grinding higher against the dollar in the short term, especially if risk appetite holds and the dollar remains soft. However, without clearer policy direction from the Fed and more concrete trade breakthroughs, the rally is likely to be capped near the 7.15 mark. Traders should watch the PBOC’s daily fixings closely for signs of tolerance—or resistance—toward further appreciation.
