USD/CNH: Risks are skewed to the downside – OCBC

USD/CNH continued to drift lower, thanks to recent news from politburo about ramping up support and also taking cues from daily fixing guidance. Policymakers continue to manage the daily fix, setting it below 7.20 and at times, even lower, when USD was even trading stronger. USD/CNH was last at 7.2519 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Daily momentum turns bearish

“Fixing pattern suggests that PBoC is doing whatever it takes to not only restraint the RMB from over-weakening but also to guide its bias and direction. Tariff may hurt RMB when it happens but that may be a story for 2025 after Trump inauguration. In the interim, we would keep a look out for the China’s CEWC meeting on 11-12 December.”

“Expectations are building up for stimulus support after politburo vowed to stabilise property and stock markets. Officials also pledged to ramp up ‘extraordinary counter-cyclical policy adjustment’ to support the economy and it also announced that it will embrace a “moderately loose” strategy for monetary policy in 2025. Follow-up policy action is crucial, and bear in mind markets are impatient. We caution that any delay in concrete policy action may setup a case for disappointment (again).”

“For now, we remain cautiously hopeful. And that would imply some support for Asian FX, including CNH, KRW, TWD, SGD and MYR. Daily momentum turned bearish while RSI fell. Risks are skewed to the downside. Support at 7.2340 (23.6% fibo retracement of Sep low to Dec high), 7.2040 9200 DMA), 7.18 levels (38.2% fibo, 50 DMA). Resistance at 7.27 levels.”