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Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities, explains that the Chinese policymaker rhetoric has emphasized the near-term importance of the 7.00 level in USDCNY, while the reintroduction of the counter-cyclical factor in the daily fixing attempts to stabilize CNY and tame the pace of CFETS depreciation.

Key Quotes

“We believe that past any near-term consideration over disorderly CNY adjustment, the 7.00 level will be allowed to eventually fall if seen as fundamentally necessary. Considerations regarding the need to adjust against tariff impact as well as preserve FX reserves against much higher external debt levels should dominate China’s priorities.”

“We remain bearish CNY, seeing the need for further macro adjustment, and the risk that additional U.S. actions drag on China’s economy, during a drawn-out trade war. We thus continue to see 7.20 achieved in the coming months (though the near-term defence of 7.00 may delay that), and the potential for a surge in offshore renminbi points and CNH-Hibor funding costs.”