Chinese Yuan: PBoC fix slows downside pace – OCBC
OCBC’s Christopher Wong reports USD/CNH briefly fell to its lowest level since February 2023 before rebounding after the PBoC set a higher-than-expected daily fix.
The People's Bank of China (PBoC) recently implemented a higher-than-expected daily fix for the Chinese Yuan (RMB) against the US Dollar (USD), causing the USD/CNH exchange rate to briefly hit its lowest level since February 2023. However, the rate quickly rebounded after the PBoC's action, demonstrating their intention to temper the pace of RMB appreciation rather than the direction, according to OCBC's Christopher Wong.
Wong argues that policymakers are focusing on controlling the speed of RMB appreciation, rather than the direction, and anticipates subdued demand for the US Dollar and RMB resilience to maintain the USD/CNH exchange rate in a downward trend. The PBoC's daily fix at 6.7795 (compared to the previous fix of 6.7787) was 700 pips higher than market estimates, reinforcing the notion that policymakers are emphasizing a measured approach to RMB appreciation.
Looking ahead, subdued demand for the US Dollar and the underlying resilience of the RMB may continue to keep the USD/CNH exchange rate biased lower. OCBC maintains a favorable outlook for a measured pace of RMB appreciation, with the fixing likely playing a crucial role as a speed limit on further gains. At the time of writing, the USD/CNH pair was trading at the 6.71 level, with no clear bias indicated by daily momentum and the Relative Strength Index (RSI).
Traders should be mindful of potential 2-way risks in the interim, with support at the recent low of 6.7060 and resistance at the 6.7180 and 6.7270 levels, which are aligned with the 21-day moving average.
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