USD/CNY forecast: Here’s why the Chinese yuan is falling suddenly

The Chinese yuan crashed this week, erasing some of the gains made in the past few weeks. The USD/CNY exchange rate rose to 6.9240, up sharply from the year-to-date low of 6.8322. So, what next for the renminbi?

Chinese yuan retreats after PBOC intervention

The USD/CNY exchange rate rebounded this week as the US Dollar Index (DXY) surged to $99.8, its highest level in months. It was up by over 3.4% from its lowest level last year. 

The US dollar has jumped amid the ongoing war in the Middle East that escalated overnight, with Iran hitting the CIA's office in Saudi Arabia.  Analysts believe that the currency will continue rising as the war accelerates.

The Chinese yuan also retreated after the People's Bank of China intervened. In its daily statement, the central bank set its daily reference rate at 6.9124 per dollar. This fixing sets the daily band, allowing the currency to move up to 2% on either side.

The statement came on the same day that a report showed that the economy was softening. The manufacturing PMI dropped to 49 in February from the previous 49.3. The non-manufacturing PMI rose slightly to 49.5. A PMI reading of less than 50 is a sign that the sectors are getting worse.

The PBOC may be getting concerned about the ongoing war in Iran and the Middle East. This war has pushed crude oil prices higher, with Brent rising to over $82. This war is notable as China consumes over 1 million barrels of oil from Iran daily. Most of the other oil to China passes through the Strait of Hormuz.

The other major reason for the bank's intervention is that the National People's Congress will open this week, which will provide more information about the plans for the year. As always, China will likely set the growth target for the year will be 5%.

The next important catalyst for the USD/CNY will be macro data from the United States. ADP will release the latest private sector jobs data later on Wednesday. 

The official report by the Bureau of Labor Statistics (BLS) will come out on Friday this week. Analysts expect the upcoming report to show that the economy created 70k jobs in February, down from the previous 122k. 

These numbers come as most economists expect that the Federal Reserve may not cut interest rates several times as analysts were expecting. 

A Polymarket poll found that the bank will deliver two rate hikes this year, lower than the previous three. This explains why US bond yields have continued rising this week, with the 30-year and 10-year rising to 4.7% and 4.03%, respectively.

USD/CNY technical analysis 

The USD to CNY exchange rate has crashed in the past few months as the US dollar rally gained steam. It plunged from last year's high of 7.3505 in April last year to the current 6.90.

The pair remains below the key level at 7.000, its lowest level in September 2024. It remains below all moving averages, while the Percentage Price Oscillator (PPO) has continued falling.

Therefore, the pair will likely continue falling as sellers target the year-to-date low of 6.8343.  However, there is a possibility that it will rebound and retest the key resistance level at 7.