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RRR Cut Boosts Equity Sentiment, USD/CNH Dips To 7.1400 Before Rebounding

CNH

USD/CNH lows were marked at 7.1415 post the Asia close on Tuesday. Softer USD trends, coupled with positive equity market moves into the onshore close after the RRR was cut by 0.5%, aided CNH sentiment. The recovery in US yields during US trade post better data, saw USD/CNH rebound. The pair tracking near 7.1600 in early Thursday trade. This was a modest gain (less than 0.10% in CNH terms), but marked the 5th straight rise for CNH.

  • USD/CNY finished up at 7.1580, while the CNY NEER (J.P. Morgan index) eased to 124.26, a 0.22% decline, as the yuan modestly lagged weaker USD trends in aggregate for Wednesday's session (BBDXY -0.20%). Current spot levels for USD/CNH are very close to the 200-day EMA, we are already sub all other key EMAs.
  • Today's focus will be on the market digesting the RRR cut news, with lower interest rates also for SMEs and the agricultural sector part of the mix. The PBoC announcement yesterday also hinted at lower LPRs going forward.
  • Whilst easier policy settings can work against the yuan all else equal, to the extent the moves stabilize local equity market sentiment, it can aid the yuan. There is still uncertainty though if the authorities have achieved this with yesterday's announcement.
  • To recap, in the equity space, the CSI 300 closed 1.4% higher, while the Golden Dragon index rallied 1.88% in Wednesday US trade.
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