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China FX Authorities See USD Strength As Unsustainable

CNH

China SAFE Head Pan Gongsheng has spoken at the Lujiazui forum in Shanghai. Comments came across as quite relaxed around the current FX backdrop that China faces. Pan stated that the FX rate is basically stable and that the market is functioning normally. He added that USD strength is unsustainable as the Fed hiking cycle nears an end. He said it was likely the US economy was likely facing a recession and that this would support the yuan.

  • Pan reiterated the authorities have increasingly amply forex policy tools.
  • Pan's comments hint the China authorities are looking to ride out this wave of USD strength. This may explain why we have seen less push back via the fixing mechanism in terms of CNY weakness, and other measures to that have been used in the past to curb depreciation pressures.
  • USD/CNH dipped slightly as Pan's comments crossed the wires, but there hasn't been much follow through. USD/CNH last around 7.1520, while onshore spot is close to 7.1400.
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