Fundamental Forecast for the Yuan:Â Neutral
- China’s Market News: Yuan at Key Resistance Ahead of 2Q GDP
- China’s Market News:Yuan Borrowing Rate Soars in Offshore Market
- What Are the Traits of Successful Traders? Get FXCM’s Free New eGuide
Both onshore and offshore Yuan retraced against the US Dollar this week: the onshore Yuan (USD/CNY) closed at a slightly more bullish position, at 6.6810 following four consecutive drops on a weekly basis; the offshore Yuan (USD/CNH) touched 6.7076 on Monday and then pulled back after Yuan liquidity was tightened in the offshore market. Both Dollar/Yuan pairs moved below key resistance levels of 6.70. At the same time, the British Pound which is included in the Yuan currency basket, recovered early losses and gained against the Chinese Yuan on the week. The onshore Yuan (GBP/CNY) dropped -2.46% while the offshore Yuan (GBP/CNH) fell -2.63%. This put less pressure on the PBoC to strategically devalue against the US Dollar in the effort of evening-out gains in the Yuan currency basket. Looking into next week, 6.70 will continue to be a key level for both USD/CNY and USD/CNH. From China’s side, the PBOC has been tightening onshore liquidity and is less likely to introduce aggressive easing programs in the near-future. In terms of outside of China, event risk from European Central Bank and US economic data may lead to major breakouts in Yuan rates.
While the Bank of England and Bank of Japan have put further easing programs on their agenda, China’s Central Bank adopts a moderate monetary policy and is likely to continue over the following periods. The PBOC has been tightening short-term liquidity over the past two weeks by reducing the issuance of 7-day reverse repos. In terms of medium-term liquidity, the Central Bank has withdrawn cash in the broader scope but injected liquidity into target financial institutions. The benchmark rates for Yuan, SHIBOR O/N, 1W, 1M and 3M, are all in a downtrend beginning on June 28. These moves highly reduced the odds of the PBOC to cut rate in the near future. This will leave less downward pressure on the Chinese Yuan.
