CNH Falters As PBOC Vows Support Via MonPol, Sets USD/CNY Mid-Point In Line With Expectations

Offshore yuan sold off sharply as the PBOC chose not to lean against its weakness via the daily fixing of USD/CNY trading band mid-point, while offering some fresh (although not fundamentally transformative) comments on monetary policy, reaffirming the central bank's determination to support the economy during the difficult time.

• The yuan reference rate was set at CNH6.5590, a mere 16 pips below the average sell-side estimate, with participants looking to the PBOC for signs of its discomfort with the pace of recent depreciation of the redback.
• In a slight rhetorical escalation, the People's Bank pledged increased support to the economy through available monetary policy tools, focusing on small companies and sectors most affected by the pandemic.
• In the same statement, the central bank outlined new support measures for coal miners and aviation sector companies, while vowing to complete rectifications of major platform companies as soon as possible.
• Reminder that the PBOC placed a speed bump ahead of soaring USD/CNH on Monday but trimming the FX RRR by 1 percentage point to 8%, effective May 15. The move comes after two hikes last year, when policymakers were pushing back against yuan appreciation.
• Spot USD/CNH topped out at CNH6.5981, slightly shy of yesterday's CNH6.6092 peak, and has trimmed gains. It last changes hands at CNH6.5836, up 115 pips on the day.
• A clearance of yesterday's best levels would turn bullish focus to Nov 9, 2020 high of CNH6.6495. Bears look for a pullback under Jul 27, 2021 high of CNH6.5287.