USD/CNY pulls back from 7.5-week highs, PBOC says RRR cut would not depreciate yuan

• The Chinese yuan (CNY) fell in early trade in response to China’s decision to cut the reserve requirement ratio (RRR).
• USD/CNY jumped to 6.9053 – the highest level since Aug. 16 high.
• The PBOC says the RRR cut would not accentuate bearish pressure around the CNY.

The USD/CNY rose to a 7.5-week high of 6.9053 in Asia, as the People’s Bank of China (PBOC) announced an RRR cut over the weekend.

The central bank’s 100 basis point rate cut will come into effect from Oct. 15 and is seen injecting a total of 1.2 trillion yuan ($175 billion) in the system.

The CNY fell in early trade as traders digested the RRR cut. The Chinese currency also came under pressure as the PBOC set the yuan reference rate at the weakest level since May 11, 2017.

Looking forward, the widening US-China differential could add to the bearish pressure around the Chinese currency, although as of writing, the CNY is gaining ground. The USD/CNY is currently trading at 6.8999, having clocked a high of 6.9053 earlier today.

The market seems to have taken heart from the fact the actual PBOC fix was 37 pips firmer than Reuters’ estimate of 6.8994 per dollar.

Further, the central bank has reportedly said that the rate cut would not create depreciation pressure on the CNY, adding that it would keep the foreign exchange markets stable.

USD/CNY Technical Levels

Resistance: 6.9053 (session high), 6.9331 (yearly high)

Support: 6.8670 (Sept. 28 low), 6.8325 (Sept. 21 low)