Nomura believes the large positive fixing error is intended to control the pace of RMB appreciation rather than end the appreciation trend

Overview

The report analyzes whether the large positive model error in today's RMB fixing means that Chinese authorities will prevent further RMB appreciation. By comparing the policy and market environment with February 2026, Nomura concludes that the signal is more likely intended to manage the pace of appreciation and maintains its view that the RMB will continue to appreciate, along with its short USD/CNH strategy.

Core views

Today's USD/CNY fixing fell 46 pips to 6.7808, its lowest level since February 8, 2023. This followed the US Treasury's unexpected announcement that it would expand the scale of longer-dated US Treasury buybacks, which drove broad US dollar weakness. However, the actual fixing was 679 pips above Nomura's model forecast, the largest positive error since the 791-pip positive error recorded on February 27, 2026. Because a positive model error means the actual fixing implies a weaker RMB than the model, this change raised concerns that the authorities may intensify efforts to limit RMB appreciation. Nomura uses February 27, 2026 as a key reference point. At that time, the People's Bank of China not only set a large positive model error but also announced that the foreign exchange risk reserve ratio for banks' forward FX sales would be reduced to 0% effective March 2; the ratio had previously been raised to 20% on September 26, 2022. Lowering the reserve ratio reduces the cost for domestic companies and other entities to purchase foreign currency or US dollars through the forward market, and Nomura therefore viewed it as a signal that the authorities were uncomfortable with the pace of RMB appreciation at the time. At that time, RMB appreciation was both rapid and divergent from the broader US dollar trend. During the month ending at the close on February 26, 2026, onshore spot USD/CNY fell 1.5%, equivalent to annualized RMB appreciation of approximately 17%. In just the three trading days from the open on February 24 to the close on February 26, USD/CNY fell by approximately 80 basis points, equivalent to annualized RMB appreciation of approximately 76%, while DXY was nearly unchanged over the same period, rising by only 10 basis points. More importantly, during the month ending February 26, DXY rose 1.6%, but USD/CNY still declined, driving the CNY CFETS index up 2.1%. This indicated that the RMB was appreciating not only against the US dollar but also significantly against a basket of currencies. Even so, after the Iran war began, Chinese authorities quickly reduced their countercyclical adjustment aimed at RMB appreciation. The positive fixing error reflecting an intention to limit RMB appreciation fell to nearly zero within six trading days, helping USD/RMB remain stable as the broad US dollar strengthened. Nomura therefore believes policy will adjust dynamically in response to the external environment rather than necessarily seeking to suppress the RMB continuously. There are four mitigating factors in the current market. First, onshore spot USD/CNY fell by only 63 basis points over the past month, equivalent to annualized RMB appreciation of approximately 7.4%, significantly below approximately 17% in the month before February 2026 and approximately 76% over the final three trading days. Nomura believes this pace is more likely to be acceptable to the authorities. Second, the rapid decline of approximately 28 basis points in USD/CNY over the latest two trading days occurred mainly alongside a decline of approximately 78 basis points in DXY. DXY has fallen by a cumulative 2.3% over the past month, which the report attributes to the market viewing Warsh's stance as dovish following the July 29 FOMC press conference, possible joint US-Japan intervention in the FX market on July 30-31 to support the yen, weaker-than-expected US July employment and inflation data, and recent US Treasury actions to limit increases in long-term US Treasury yields. Third, from July 21 to August 20, 2026, the CNY CFETS index instead fell by approximately 78 basis points, unlike the broad appreciation of the RMB against a basket of currencies before February. This indicates that the current appreciation of the RMB against the US dollar primarily reflects broad US dollar weakness rather than a disorderly and broad-based rapid appreciation of the RMB itself. Fourth, exporters' FX conversion has slowed slightly relative to export revenues, but the latest July data show that domestic companies' net FX transaction settlements remain strong, albeit slightly weaker than in February 2026. Meanwhile, China-focused equity ETFs have seen modest foreign inflows since August, contrasting with the large outflows from February to March 2026. Emerging-market equity ETFs have also recently attracted greater foreign inflows, and such funds have relatively high allocations to Chinese equities. Based on these differences, Nomura interprets today's 679-pip positive fixing error as an effort to control the pace of RMB appreciation rather than prevent appreciation. The report maintains its short USD/CNH strategy with 4/5 conviction, targeting 6.55 by the end of October, corresponding to an approximately 3.0% return. Supporting factors include the US dollar weakness theme, strong corporate FX conversion inflows amid large monthly trade surpluses, stabilizing foreign flows into China's equity market, the report's assessment that the RMB is significantly undervalued, the possibility that China-US relations will remain stable ahead of the planned Trump-Xi summit in September, and the authorities' medium-term objective of advancing RMB internationalization. The report also highlights two near-term risks: Hong Kong-listed Chinese companies are scheduled to pay approximately USD3.9 billion in large dividends to overseas investors on August 21, potentially generating foreign currency demand. In addition, Trump has declared that he will launch an “economic D-Day” against Iran and entities doing business with the Iranian regime. As China is Iran's largest trading partner, whether the Iran war and related measures will significantly affect China-US relations remains a key issue to monitor.

Analysis framework

The report first examines today's USD/CNY fixing and the error between the actual fixing and the model forecast, then reviews a similar signal on February 27, 2026 and the adjustment to the foreign exchange risk reserve ratio for forward FX sales. It subsequently compares the pace of RMB appreciation, the direction of DXY, the CNY CFETS index, corporate FX conversion, and equity ETF flows across the two periods to determine that the current policy signal is more consistent with pace management. Finally, the report incorporates these macroeconomic, policy, and capital-flow factors into its short USD/CNH target and near-term risk assessment.

Methodology notes

• Macroeconomic framework

  Fixing model error and historical scenario comparison

  The report defines the model error as the actual USD/CNY fixing minus the model forecast and regards a positive error as a reference signal of the authorities' efforts to limit RMB appreciation. It then compares the error, policy actions, and market environment with those of February 2026.

• Event Games and Behavioral FinanceEvent-driven analysis

  Exchange-rate analysis driven by policy and geopolitical events

  The report analyzes how events such as adjustments to the FX risk reserve ratio, US Treasury buybacks, possible US-Japan FX intervention, US data, and the Iran war affect the US dollar, RMB, and policy responses.

• Event Games and Behavioral FinanceCapital Flow/Positioning Analysis

  Corporate FX conversion and equity ETF flow analysis

  The report uses changes in domestic companies' net FX settlements and flows into China-focused and emerging-market equity ETFs to assess whether real supply-demand support for the RMB and the foreign investment environment are stabilizing.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• USD/CNH

  The report maintains its short USD/CNH view, meaning it expects the offshore RMB to continue appreciating against the US dollar.

  Strengths

  US dollar weakness, strong corporate FX conversion inflows, stabilizing foreign capital flows, the report's assessment that the RMB is significantly undervalued, and the objective of RMB internationalization provide support.

  Weaknesses

  The positive fixing error indicates that the authorities are managing the pace of RMB appreciation, which may subject near-term movements to policy adjustment.

  Comparison

  The current annualized pace of RMB appreciation is approximately 7.4%, lower than approximately 17% in the month before February 2026 and approximately 76% over the final three trading days.

  Risks

  Approximately USD3.9 billion in dividend payments on August 21 may increase demand for US dollars, while developments related to Iran could also affect China-US relations.

• CNY CFETS index

  The index fell by approximately 78 basis points over the past month, indicating that RMB appreciation against the US dollar has not translated into broad strengthening against a basket of currencies.

  Strengths

  The weaker index reduces the likelihood that the current RMB appreciation will be viewed as disorderly or excessively rapid.

  Comparison

  The index rose 2.1% in the month before February 2026, while DXY also rose 1.6%, markedly different from the current environment.

  Risks

  If the RMB again appreciates rapidly and broadly in a manner that diverges from broader US dollar movements, the authorities may strengthen countercyclical adjustments.

Key data

• Today's USD/CNY fixing6.7808Down 46 pips from the previous fixing, the lowest since February 8, 2023
• Today's fixing model error+679 pipsActual fixing minus model forecast, the largest positive error since February 27, 2026
• February 27, 2026 model error+791 pipsAt the time, it was accompanied by measures from the People's Bank of China to slow RMB appreciation
• FX risk reserve ratio for forward FX salesReduced to 0% effective March 2, 2026Previously raised to 20% on September 26, 2022
• USD/CNY change in the month before February 2026-1.5%Equivalent to annualized RMB appreciation against the US dollar of approximately 17%
• USD/CNY change over the final three trading days of February 2026Approximately -80 basis pointsEquivalent to annualized RMB appreciation of approximately 76%, while DXY rose by only 10 basis points over the same period
• CNY CFETS index in the month before February 2026+2.1%DXY rose 1.6% over the same period, yet the RMB still strengthened against both the US dollar and a basket of currencies
• USD/CNY change over the current past month-63 basis pointsEquivalent to annualized RMB appreciation of approximately 7.4%
• Market changes over the latest two trading daysUSD/CNY approximately -28 basis points; DXY approximately -78 basis pointsRMB strength against the US dollar occurred mainly alongside broad US dollar weakness
• DXY change over the past month-2.3%An important external backdrop for the current appreciation of the RMB against the US dollar
• CNY CFETS index changeApproximately -78 basis pointsMeasurement period from July 21 to August 20, 2026
• USD/CNH strategy target6.55Target horizon is the end of October, with 4/5 conviction and an expected return of approximately 3.0%
• Dividend payments to overseas shareholdersApproximately USD3.9 billionHong Kong-listed Chinese companies are expected to make the payments on August 21, 2026

Impact & implications

Nomura believes today's large positive fixing error indicates that the authorities want to prevent the RMB from appreciating too rapidly. However, the current pace of appreciation is more moderate, the broad US dollar is weakening, and the CFETS index has not strengthened in tandem, so the need for policy to prevent further RMB appreciation is lower than in February 2026. The report therefore maintains its view of RMB appreciation and its short USD/CNH strategy while emphasizing that near-term capital outflows and geopolitical developments could cause volatility.

Risks

• Hong Kong-listed Chinese companies will pay approximately USD3.9 billion in dividends to overseas investors on August 21, potentially increasing near-term demand for foreign currency or US dollars.
• The Iran war and US measures targeting Iran and entities conducting transactions with it could significantly affect China-US relations because China is Iran's largest trading partner.

What to watch

• Monitor the impact of approximately USD3.9 billion in dividend payments on August 21 on corporate FX purchases and the near-term movement of USD/CNH.
• Monitor whether the Iran war and related US economic measures significantly alter China-US relations.