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Frances Cheung, head of macro strategy at Westpac, points out that the USD/CNY is shifting slightly higher after it has been trading in a tight range in the past week.

Key Quotes

“It appears difficult for the pair to stay sustainably below the support at 6.6967 for now. Resistance is at 6.76. The official growth target of 6.0-6.5% for this year is consistent with our GDP forecast of 6.1%. The fiscal deficit target of 2.8% is not aggressive, but the increase in LGB (local government bond) quota will be complementary to fiscal expansion.”

“If the RMB is part of a trade deal, we wonder if it can go much beyond a vague reference to yuan stability. It looks unrealistic to us that China would accept any explicit clause putting down ranges for USD/CNY and/or incorporating a vigorous monitoring process. If it is only a reference to a “stable yuan” then it is not too meaningful. The PBoC defines yuan stability around equilibrium levels, and these equilibrium levels are not static.”