Economists at Commerzbank expect the USD/CN pair to edge higher. However, the People’s Bank of China is set to prevent a substantial fall in the yuan. 

PBoC is cognizant of the risks of a precipitous decline in CNY

“A pro-growth, easier monetary and fiscal policy stance would normally entail a weaker CNY. As such, our bias is still to the upside for USD/CNY i.e. a weaker CNY. However, PBoC is also cognizant of the risks of a precipitous decline in CNY. As such, any CNY weakness is likely to be managed and PBoC is still expected to maintain a strong oversight.”

“The latest data showed that China reduced its US Treasury holdings for the seventh consecutive month in June. This could be due to political reasons as China seeks to diversify away from USD assets but also indicative of PBoC intervention to support CNY amid the strong USD backdrop. It should be a reminder of PBoC’s ammunition to support CNY to prevent excessive and undesired volatility.”