Chinese Yuan: Constructive appreciation bias maintained – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong describe a measured but persistent appreciation trend in the Renminbi (RMB), with onshore spot and the CFETS index at four-year highs and the People's Bank of China (PBoC) guiding a stronger fixing. They keep a constructive bias, noting downside-skewed USD/CNH technicals and support levels, while China’s Fifth Plenum reaffirmed growth targets without new stimulus, suggesting policy comfort with gradual RMB strength.

Measured gains and supportive fixing

"RMB extended its appreciation, with onshore spot reaching a fresh 4-year high against USD. Strength was also evident on a trade-weighted basis, with the CFETS RMB index trading around 4-year highs."

"Meanwhile, PBoC continued to guide the fixing gradually stronger, suggesting that policymakers remain comfortable with further RMB appreciation, albeit at a measured pace. The RMB’s resilience is notable given that USD has remained relatively firm against other major currencies."

"We retain a constructive bias on RMB. The steady progression in the fixing suggests little inclination from policymakers to reverse the appreciation trend, although the pace may moderate. Resilient US growth and still-elevated inflation could lend support to USD near term, but this need not derail RMB’s appreciation trajectory."

"USD/CNH last seen at 6.6580 levels. Mild bearish momentum on daily chart intact while RSI fell into oversold conditions. Risk of snapback not ruled out especially if fixing momentum upsets."

"But broad bias remains skewed to the downside for now. Next support at 6.65 before 6.62 levels. Resistance at 6.6830 (21 DMA), 6.70 (50 DMA)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)