FUNDAMENTAL FORECAST FOR CNH: BEARISH
- PBOC’s guidance rate could hint if the Yuan will reach bottom in the near future.
- A spat on macro polices revealed economic difficulties; PMI prints will add more clues.
- The US-China-EU trilateral relationship has become a key factor in the on-going trade war.
How to trade news? Learn with DailyFX Free Trading Guides![1]
The Chinese Yuan dropped for the seventh consecutive week against the U.S. Dollar[2] on both onshore and offshore markets; it also lost against all other G10 currencies over the same time. The spread between the offshore Yuan rate and Yuan’s reference rate widened as well, to nearly 300 pips on Friday. Looking forward, PBOC’s guidance, Chinese event risks, the country’s macro-economic policies, as well as the US-China trade war[3] will be top drivers to the Yuan.
There have been increasing market speculation that China’s Central Bank is trying to weaken the Yuan amid the US-China trade war. In the past week, excessive weakness in the reference rate was not seen; the so-called Yuan fix moved in both directions over the days. However, it is still worth to continue to keep a close eye on the guidance rate, for clues of further Yuan weakness. This may help to predict whether the bottom of the Yuan is likely to see in the near future.
Also, Chinese regulators have shown diverged opinions over the macro-economic policies. While the PBOC, banking and securities regulators primarily targeted at curbing financial risks, the task of dealing with economic slowdown seems to have fallen onto Finance Ministry’s shoulder; an argument
