Synopsis:

Bank of America expects USD/CNY to remain range-bound between 7.10 and 7.30 in the near term, with balanced FX flows and supportive policy signals. Recent comments by the PBoC suggest comfort with the current FX level, while incremental steps to open China’s capital markets will shape flow dynamics.

Key Points:

• Policy Stability:
  • At the Lujiazui Forum, a PBoC deputy governor confirmed plans for additional QDII quotas, enabling more outward investment in foreign securities.
  • This signals that regulators are comfortable with current exchange rate stability and are focused on gradual financial market liberalization.

• Balanced Flow Dynamics:
  • Net USD selling from goods trade surpluses continues to add mild downside pressure on USD/CNY.
  • This is likely to be offset by seasonal dividend outflows and rising outward portfolio flows, including fresh QDII activity.

• No Strong Breakout Expected:
  • Overall, BofA sees supply and demand in broad balance, keeping USD/CNY locked in a 7.10–7.30 range for now.

Conclusion:

China’s FX market remains well-managed, with regulators comfortable enough to expand cross-border investment channels. BofA sees USD/CNY stability prevailing, with no strong catalyst for a breakout as capital inflows and outflows broadly offset each other in the near term.