Analysts expect further PBoC rate cuts as weak domestic demand and falling investment threaten China’s outlook, potentially limiting further gains in CNY exchange rates.
The Chinese Yuan ended July close to its strongest level of 2026, with the USD/CNY exchange rate falling to 6.7515 after declining 0.63% over the month.
The pair has dropped 3.49% since January, reflecting broad Dollar weakness and China’s large trade surplus.
Rabobank, however, warns that the domestic economy remains fragile and continues to forecast two 10-basis-point interest-rate cuts from the People’s Bank of China before year-end.
China’s second-quarter growth was weaker than expected. GDP expanded 4.3% year-on-year, below the 4.5% consensus estimate, while year-to-date growth reached 4.7%.
“China’s economy slowed more significantly than was generally anticipated,” Rabobank said.
The bank noted that exports remain strong, with China’s first-half trade surplus reaching $578bn and putting the country on course for another surplus above $1tn this year.
Domestic conditions are far less convincing.
“While retail sales and imports surprised to the upside, we believe that we cannot yet conclude that domestic demand has turned the corner and has embarked on a sustainable recovery,” Rabobank said.
USD/CNY fell 0.63% during July and ended the month close to its lowest level of 2026.
Property investment has fallen 18% year to date, while residential property sales declined 13.7% in June.
Rabobank said the figures show that the real-estate crisis is “far from being solved” and may be deteriorating rather than nearing a bottom.
Investment is also weakening beyond property. The bank argued that China’s reliance on industrial expansion has produced excess capacity and “cut-throat price competition”, placing sustained pressure on corporate margins and prices.
“This raises the question whether Beijing will continue its focus on stimulating investments despite the government communicating that it prioritizes stimulating domestic consumption,” Rabobank said.
USD/CNY Outlook: Rate Cuts Could Limit Further Yuan Gains
Rabobank expects China to introduce additional consumption support and maintains its “off-consensus forecast of two minor PBoC rate cuts of 10bp each for the remainder of this year”.
Such easing could restrain the Yuan, particularly if it widens the yield disadvantage against the United States.
Strong exports and persistent Dollar weakness may continue to support CNY in the near term, but Rabobank sees deeper structural problems.
“China’s current reliance on exports to drive its economic growth seems increasingly unsustainable,” the bank said.
USD/CNY has fallen 3.49% in 2026, although Rabobank’s call for further monetary easing presents a headwind for the Yuan.
Rabobank expects China to be pushed gradually towards an economy driven more by domestic consumption, but warns that the transition will be “costly and potentially disruptive”.
For USD/CNY, that leaves the near-term trend lower, but with limited room for continued Yuan appreciation if Beijing steps up monetary stimulus.
