USD/CNY Forecast: UBS Sees Export Conversions Supporting Further Yuan Gains
UBS expects the Chinese Yuan to gain against the US Dollar as export conversions support the currency, despite weak demand and a cautious PBoC.
The US Dollar-to-Chinese Yuan exchange rate edged down to 6.6612 on Thursday, with UBS expecting export earnings to support further Yuan gains even as China’s domestic economy remains soft.
The bank retains USD/CNY forecasts of 6.60 for December 2026 and 6.50 by mid-2027, continuing the appreciation path it maintained in September.
UBS sees export-related buying supporting the currency without tighter Chinese monetary policy, while interpreting the People’s Bank of China’s daily exchange-rate guidance as an effort to control the pace of appreciation.
UBS strategists Teck Leng Tan and Dominic Schnider write: “China’s external sector remains a key source of support for the yuan, helping offset continued softness in domestic demand. Resilient exports and associated FX conversion flows should continue to underpin the CNY.”
Foreign-currency earnings are finding their way into Yuan
September foreign-exchange settlement data show Chinese banks bought the equivalent of $56.2 billion more foreign currency than they sold, calculated from figures published by the State Administration of Foreign Exchange.
That is a broad measure: it covers banks’ own transactions as well as customer business, including settled forward contracts and exercised options.
It cannot all be attributed to exporters selling Dollars in the spot market.
UBS links the currency demand to overseas earnings:
“Export performance has remained resilient alongside CNY appreciation, sustaining large trade surpluses and associated foreign-currency receipts.”
“As these receipts are converted by exporters, they create underlying demand for the CNY.”
Companies can retain foreign earnings, so strong shipments need not translate immediately into matching Yuan purchases.
Controlling the pace of gains
UBS describes a pattern of daily exchange-rate guidance that has persisted through the year:
“The People’s Bank of China’s fixing behavior also remains broadly consistent with the pattern that has prevailed this year. The official USDCNY fixing has continued to move lower, while remaining weaker than market expectations.”
A lower USD/CNY fixing allows a stronger Yuan, but a fixing above market expectations can still restrain the pace of gains.
UBS says the gap between the official fixing and market estimates has remained broadly stable this year.
UBS writes: “We therefore see little evidence from the fixing mechanism that the PBoC has become less tolerant of gradual CNY appreciation.”
The domestic economy gives policymakers a reason to proceed carefully.
Faster currency gains can reduce exporters’ Yuan receipts for a given amount of foreign sales, which becomes more uncomfortable when demand at home is weak.
UBS says: “At the same time, the domestic economy remains considerably softer.”
“This leaves policymakers facing a familiar tension: strong external accounts support further currency appreciation, while weak domestic demand limits the case for tighter domestic financial conditions.”
Goldman also expects gradual appreciation
Goldman Sachs separately sees sustained Yuan gains, citing trade, valuation and China’s ambition to expand the currency’s international use:
“However, we expect the CNY to appreciate against the USD by around 3-5% per year, underpinned by a robust trade surplus, significant undervaluation in the CNY, and a trajectory that suits policymakers’ CNY internationalization goals.”
UBS also expects a softer US Dollar to help over its forecast horizon, but its explanation for this year’s strength places greater weight on Chinese flows:
“CNY appreciation has persisted through intermittent USD rebounds since January, underscoring the importance of China’s balance-of-payments dynamics. Over our forecast horizon, we continue to expect softer USD dynamics to provide an additional tailwind to the yuan.”
What This Means for USD/CNY
Further export conversions would support UBS’s projected decline in USD/CNY even if China’s domestic recovery remains uneven. The September settlement surplus shows a source of buying that does not require higher Chinese interest rates.
The PBoC’s response will help determine how smoothly that support reaches the exchange rate. Continued lower fixings would fit UBS’s interpretation, while fixings that lean more strongly against appreciation could slow the move.
Weak domestic demand leaves a constraint on the speed of appreciation, particularly if exporters start struggling to absorb it. UBS’s constructive view rests on overseas earnings remaining resilient enough for policymakers to tolerate further gains.
