Asia FX Monthly Outlook - 1 December 2023

To gain momentum on higher possibility of a Fed’s dovish shift and the BoJ’s hawkish pivot

CNY (7.135) ▲

  • The sharp decline in the USD index to as low as 102.7 (Nov 28) from 106.9 (Nov 1) has resulted in a 2.5% appreciation of the yuan against the USD. This is mainly driven by increasing signs of disinflation in the US, coupled with the prospect of a potential turnaround in the Chinese economy. Additionally, the yuan has been bolstered by state-owned banks' yuan-buying activities and the People's Bank of China's (PBoC) strong fixing bias.
  • Persistent widening of the US-China interest rates differential and China's uneven economic recovery may continue to put pressure on the yuan towards year-end. The yuan may face more pressure if the PBoC embarks on more policy easing. However, the increasing likelihood that the Fed may turn dovish in December, coupled with continued interventions by the government, may keep the yuan buoyant around the 7.10/USD level.