FUNDAMENTAL FORECAST FOR CNH: Neutral
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- PBOC stepped in twice when the USD/CNH[2] broke above 6.90, a key threshold below 7.0.
- US-China Trade war and weak Chinese fundamentals add difficulties to support the Yuan.
- USD/HKD[3] touched the lower limit of 7.85, a level that HKMA will continue to defend.
The offshore Chinese Yuan gained against the U.S. Dollar[4] this week after nine consecutive losses, amid the PBOC’s further intervention to defend the Yuan. Overall, the Chinese currency rose against seven of the G10 currencies, except the CAD[5], JPY[6] and NZD[7]. The Hong Kong Dollar, used in one of China’s autonomous territories, touched the lower band of its pegged currency regime and triggered local monetary authority’s intervention. Looking forward, both currencies will continue to eye on policymakers for support, amid both internal and external pressure.
PBOC Watches USD/CNH’s Key Levels of 6.9 & 7.0
China’s Central Bank shut down channels for commercial banks to deposit or lend the Yuan to the offshore market through the free trade zone scheme, after the USD/CNH jumped above 6.90 on Wednesday. This basically tightened the offshore Yuan liquidity and increased the cost of Yuan short. Following the move, the USD/CNH fell back below 6.90.
USD/CNH 1-Week
Two weeks, the PBOC hiked the reserve requirement ratio on FX forwards last week[8], after the USD/CNH hit above 6.90 for the first time in 15 months. Breaking above this level
