Chinese Yuan: Authorities seen moderating appreciation pace – OCBC

OCBC’ strategists Sim Moh Siong and Christopher Wong expect USD/CNH to consolidate as Chinese policymakers temper rapid Renminbi (RMB) gains. A recent hike in the FX deposit reserve requirement ratio to 6% has curbed near-term appreciation momentum, though the bank still holds a measured RMB appreciation bias. They see daily fixings as crucial for gauging policy restraint and highlight nearby resistance and support levels for USD/CNH.

RMB consolidation as PBoC leans against strength

"USD/CNH rose to intra-day high of 6.6860 at one point before easing lower. The short squeeze came following the PBoC’s announcement (on Tue) to raise the FX deposit reserve requirement ratio by 2ppts to 6%."

"The policy measure tempered near-term appreciation momentum, with further USD/CNH upside not ruled out as markets reassess the authorities’ tolerance for currency strength. The daily fixings remain key in gauging the extent of policy restraint."

"We continue to view the latest measure as an attempt to manage the pace of RMB gains rather than alter the broader direction of travel. While near-term RMB consolidation or a further pullback cannot be ruled out, our measured appreciation bias remains intact, particularly if broader USD weakness becomes more sustained."

"Daily momentum turned mild bullish while recent rise in RSI moderated. Some consolidation is likely to take hold unless fixing surprises."

"Resistance at 6.6760 (21 DMA), 6.6840 (50% fibo retracement of Sep high to Nov low) and 6.6940/60 levels (61.8% fibo, 50 DMA). Support at 6.6620 (23.6% fibo)."

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