Asia FX Monthly Outlook - 2 January 2024

Likely to benefit from rising capital inflows amid BoJ’s hawkish bias and Fed’s dovish shift

CNY (7.100)

  • As expected, the CNY ended 2023 at 7.10 against the USD, primarily influenced by the cooler-than-expected US inflation reading and dovish signals from the Fed. The yuan's strength was further buoyed by the PBoC's strong fixing bias. Nevertheless, yuan’s appreciation was tempered by indications of weak consumer spending.
  • The persistent depreciation of the USD, driven by expectations of swifter-than-expected Fed rate cuts, is likely to remain the primary catalyst for the yuan in 1Q24. The bleak economic outlook for China may continue to deter capital inflows into the country, hurting the yuan. However, any new stimulus measures implemented by the government, coupled with an uptick in consumer spending, has the potential to bolster the yuan's performance in 2024.