Nomura maintains its short USD/CNH call with a target of 6.55, based on strong trade-related FX conversion and potential tech-stock fund inflows supporting the renminbi.

Overview

This is a strategy trade report from Nomura Asia FX Strategy, with the core recommendation to short USD/CNH. The report argues that although the US dollar may still be supported by geopolitics and inflows into US assets, domestic Chinese factors continue to support CNH appreciation, including corporate FX conversion, RMB fixing management, expectations for foreign inflows, stable US-China relations, and improving attractiveness of RMB assets.

Core views

The report's core view is that the RMB has the conditions to continue appreciating, and USD/CNH could fall to 6.55 by end-October 2026. The main support comes from seven factors: first, Chinese corporates continue converting FX amid a large trade surplus; second, the USD/CNY fixing shows a relatively clear downward trend; third, USD/CNH reacts more strongly to declines in DXY; fourth, progress in China's AI large models and policy support could attract foreign inflows into equities; fifth, expectations for high-level US-China engagement may ease market concerns; sixth, RMB internationalization policies are enhancing the attractiveness of RMB assets; and seventh, the RMB remains undervalued.

Analysis framework

The report uses a macro FX strategy framework, combining trade settlement data, DXY and USD/CNH sensitivity, fixing deviations, cross-border equity fund flows, policy and geopolitical relations, and FX valuation models to assess the directional trading opportunity of the RMB against the US dollar.

Methodology notes

• FX trade recommendationNomura conviction scale

  Conviction level 3/5

  Nomura defines 3/5 as one-third of the target position allocated; the Short USD/CNH trade in this report carries a conviction level of 3/5.

• Macro FX analysisCorporate net FX trade settlement

  Conversion of trade surplus into RMB demand

  The report uses Chinese corporates' net FX trade settlement surplus, exporters' remittance ratio, and importers' FX purchase demand ratio to judge whether corporates are more willing to convert USD income into RMB.

• Policy and market microstructureUSD/CNY fixing error

  Fixing deviates from model projection

  The report observes changes in the positive deviation of the actual fixing relative to the model projection to assess how Chinese authorities manage the pace of RMB appreciation and the downward bias in the fixing.

• Valuation analysisNomura four FX valuation models

  RMB undervaluation

  The report states that, based on the average of four FX valuation models, the RMB is undervalued by 9.7%; the productivity-adjusted REER shows 20.2% undervaluation.

Asset mapping & comparison

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

• USD/CNH

  Core trade instrument, recommended short

  Strengths

  The target is clearly set at 6.55, with conviction level 3/5; supported by trade-related FX conversion, a lower fixing, and RMB undervaluation.

  Weaknesses

  The downside for the USD may be limited by factors such as geopolitics and inflows into US assets.

  Comparison

  The report argues that USD/CNH is more sensitive to DXY declines than to DXY rises.

  Risks

  If the USD strengthens again, risk sentiment deteriorates, or US-China relations become tense again, the trade may come under pressure.

• CNH/RMB

  Currency direction viewed bullishly

  Strengths

  Strong corporate FX conversion, advancing RMB internationalization, undervaluation, and relatively strong policy stability.

  Weaknesses

  The pace of RMB appreciation may still be managed by policy, and a positive fixing deviation may continue to exist.

  Comparison

  Compared with a pure USD factor story, the report emphasizes that domestic Chinese factors are more important for CNH performance.

  Risks

  A slowdown in exports, weaker willingness to convert FX, or a shift in policy stance could weaken appreciation momentum.

• Chinese tech stocks and China equity ETFs

  Potential channel for foreign inflows

  Strengths

  The launch of Kimi K3, progress in AI technology, tech IPOs, and state capital support may improve foreign investor sentiment.

  Weaknesses

  The report also acknowledges that such flows are still at an early stage, with China equity ETFs still seeing USD2.1bn of outflows MTD in July.

  Comparison

  The report draws an analogy between Kimi K3 and the foreign inflows following the launch of DeepSeek-R1 in 2025.

  Risks

  If the sell-off in tech stocks continues or foreign capital does not return, the marginal support for the RMB will weaken.

Key data

• Trade recommendationShort USD/CNHTarget 6.55, with timing at end-October 2026.
• Conviction level3/5Raised from 2 to 3/5 on July 16, 2026.
• Expected returnabout 3.0% gainCorresponding to the target of USD/CNH falling to 6.55.
• June net FX trade settlement surplusUSD81.8bnMay was USD53.6bn, and the Q2 average was USD61.0bn.
• Coverage ratio of trade surplus after adjustment for RMB settlement92.9%Showing strong corporate FX conversion demand.
• Exporters' remittance ratio52.5%May was 46.2%, and the Q2 average was 49.6%.
• Importers' FX purchase demand ratio47.0%May was 44.4%, and the Q2 average was 46.6%.
• USD/CNH sensitivity during DXY upswings38%From June 16 to 24, 2026, DXY rose 2.1%, while USD/CNH rose 0.84%.
• USD/CNH sensitivity during DXY downswings106%From June 24 to July 21, 2026, DXY fell 0.64%, while USD/CNH fell 0.68%.
• RMB undervaluation magnitude9.7%Based on the average of Nomura's four FX valuation models.
• Productivity-adjusted REER undervaluation magnitude20.2%The report believes this also supports RMB appreciation.
• Foreign inflows into China equity ETFs after DeepSeek-R1USD4.4bn in February 2025, USD2.5bn in MarchThe report uses this as an analogy for potential inflows after Kimi K3.

Impact & implications

If the report's view is correct, a decline in USD/CNH would reflect offshore RMB appreciation against the US dollar. Related beneficiaries include RMB assets, FX positions sensitive to RMB appreciation, and Chinese tech stocks that may be supported by returning foreign inflows. The main trading implication is that, with near-term USD weakness overlapping with supportive domestic Chinese factors, short USD/CNH still offers an attractive risk-reward profile.

Risks

• The USD strengthens again due to US inflation, geopolitics, or inflows into US assets.
• Chinese corporate FX conversion demand comes in below expectations, weakening the conversion of the trade surplus into RMB demand.
• US-China relations suffer a new negative shock, weakening market risk appetite.
• Foreign inflows into Chinese tech stocks fall short of expectations, and the Kimi K3 or DeepSeek analogy effect fails to materialize.
• Management of the RMB fixing limits the pace of appreciation, causing USD/CNH to decline more slowly than the target path.

What to watch

• Whether USD/CNH moves toward the 6.55 target.
• Whether the DXY trend and the asymmetric sensitivity of USD/CNH to DXY up and down moves continue.
• Chinese corporates' net FX trade settlement, exporters' remittance ratio, and importers' FX purchase demand ratio.
• The direction of the USD/CNY fixing and changes in the actual-minus-model fixing error.
• Foreign inflows into Chinese tech stocks, AI themes, and China equity ETFs.
• High-level US-China interactions around September and related statements on a Trump-Xi Summit.
• Follow-up implementation of PBoC RMB internationalization tools and the FIMA RMB Repo.