The Chinese yuan depreciated by 0.11% against the US dollar in January. Economists at MUFG Bank expect the USD/CNY to hover around this month and then edge higher towards 6.40 the end of the first quarter.

Further policy rate cut expected in China

“We expect additional policy rate cut by PBoC to happen in the remainder of Q1, and the divergent direction of monetary policies between China and the US implies a further narrowing of yield spreads between US and China, which will put downward pressure on CNY. But-near term, seasonality factor, those corporations with US dollar may still have demand for conversion around/after the Chinese New Year time, which might keep CNY at relative strong levels.”

“We expect USD/CNY to remain around 6.3700 in February, and then to move slightly higher to 6.4000 by the end of Q1 2022.”