USD/CNH bounces off multi-month low on PBOC’s action
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USD/CNH bounces off multi-month low on PBOC’s action

  • USD/CNH recovers from the lowest since April 2019, regains 6.70 mark.
  • PBOC eased rules for financial institutions concerning the FX, denies easing monetary policy like the west.
  • US House Speaker Pelosi rejects President Trump’s stimulus proposal.
  • Virus woes, US-China tussle may entertain traders amid a partial off in America.

USD/CNH eases from the intraday high of 6.7414 to 6.7170, still up 0.38% on a day, during the early Monday. The pair surged heavily at the day’s start, bouncing off April 17, 2019 low, to reflect the People’s Bank of China’s (PBOC) weekend moves. However, the risk sentiment and a lack of major data/events probe the bulls.

PBOC recalls September 2017…

With the Chinese currency trading near a multi-year high versus the US dollar, the export-oriented economy has an additional burden to bear, other than the coronavirus (COVID-19)-led economic weakness. This pushed PBOC to set financial institutions free from the need to set aside cash when purchasing FX for clients through forwards. Such moves were taken in September 2017 and offered more than a 2.0% drop in the Chinese yuan (CNY) during the following three weeks.

Even so, the PBOC Governor Yi Gang is of the view, per China Finance, that the central bank won’t employ larges-scale monetary loosening like the West and instead focus on the consumer price stability and exchange rates to help the economy recover.

On the other hand, Friday’s risk-on sentiment, mainly backed by US President Donald Trump’s push for $1.8 trillion COVID-19 stimulus, faded on Monday. The reason could be traced from the increasing odds of no aid package ahead of the US Presidential Election, up for November 05.

It’s worth mentioning that the pandemic is forcing stricter lockdown conditions in European countries and some parts of the UK, which in turn offers additional challenges to the risk-tone.

Furthermore, PBOC Vice Governor Fan Yifei reiterated the Sino-American tension and its negative market implication. The same has been providing background music to safe-havens for the last many months.

Against this backdrop, S&P 500 Futures prints 0.10% gains while stocks in Asia-Pacific seems to be led by Beijing’s run-up. US treasuries aren’t up for trading today due to the Columbus Day holiday in America.

Moving on, mixed messages from the PBOC, easing on FX and not via monetary policy, seem to defy the Chinese currency’s anticipated weakness. The same is likely to be joined by the US dollar’s further declines unless any strong data/events pop-up.

Technical analysis

Unless bouncing back beyond the mid-September lows, near 6.7425, USD/CNH is less likely to recall the bulls.


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