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. Wong argues policymakers are leaning against the pace, not the direction, of RMB appreciation and expect subdued Dollar demand and RMB resilience to keep USD/CNH biased lower, with the fix acting as a speed limiter.

Fixing acts as speed limiter

"USD/CNH fell briefly to 6.7060 intra-day low on Monday, its lowest since February 2023. The pair then rebounded sharply after PBOC set the daily fix higher at 6.7795 (vs. Fri fix of 6.7787)."

"Market estimates was >700pips lower than the actual fix, reinforcing our view that policymakers are leaning against the pace, rather than the direction of RMB appreciation."

"Near term, subdued USD demand and underlying RMB resilience may continue to keep USD/CNH biased lower. We continue to favour a measured pace of RMB appreciation, with the fixing likely to serve as an important speed limit on further gains."

"USD/CNH last at 6.71 level. Daily momentum and RSI are not indicating a clear bias. 2-way risks likely in the interim. Support at 6.7060 (recent low), 6.70 levels. Resistance at 6.7180, 6.7270 (21 DMA)."