Chinese Yuan: Gradual gains with capped upside against US Dollar – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong note that USD/CNY has extended its decline on softer United States (US) Consumer Price Index (CPI) and Producer Price Index (PPI), with firmer People's Bank of China (PBoC) fixings validating gradual RMB appreciation. China’s large trade surplus and exporter US Dollar (USD) selling offer a supportive backdrop, but soft domestic growth and potential policy easing should limit the pace of gains. Key USD/CNH support and resistance levels frame the near-term range.

USD/CNY downside and key levels

"USD/CNY extended its decline as softer US CPI, PPI weighed on the USD and pared back Fed tightening expectations. Firmer PBoC fixings reinforced the move, suggesting policymakers are comfortable allowing some gradual RMB appreciation rather than actively pushing the currency higher."

"China’s large June trade surplus provides a supportive flow backdrop, with market chatters of exporter USD sell flows, though this is better viewed as a possible amplifier than a confirmed driver."

"Near term, further downside in USD/CNY may depend on USD softness extending and the fix continuing to validate spot moves. China’s soft domestic growth backdrop and scope for further policy easing should still limit the pace of RMB gains."

"Decisive break may open room for 6.72 – 6.74 area. Meantime, resistance at 6.7860/ 6.79 (21, 50 DMAs)."

"USD/CNH last seen at 6.7690 levels. Bearish momentum on daily chart intact while RSI shows signs of turnaround from near oversold conditions. Support at 6.7540 (year-to-date low)."

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