US Refrains From Labelling China FX Manipulator

After weakening following a miss in several portions of the data dump on Friday last week the yuan regained some poise during the US session as the greenback slipped alongside declining yields. USD/CNH last at 6.5279, down from highs of 6.5366 on Friday, the pair dropped as low at 6.5210 before a small bounce into Friday's close.

• CBA expects a subdued week for the yuan: "USD/CNH will largely be a function of USD direction this week. Last week's 0.6%/qtr expansion in China's Q1 2021 GDP was the slowest since the GFC. Nevertheless, the weakness in Q1 2021 was almost fully offset by a large upward revision to GDP growth in Q4 2020. However, we still expect a strong 9.2%/yr rebound in China's economic growth in 2021 in part because the recovery in the global economy will underpin China's export sector. Our expectation that China will maintain a large trade surplus (especially vs the US) will be a medium term weight on USD/CNH." Markets will await the PBOC's 1- & 5-year LPR settings on Tuesday, though no change is expected.
• Elsewhere, on Friday a report from the US Treasury refrained from designating any trading partner, including China, as a currency manipulator. The new assessments signal the Biden administration is taking a less confrontational approach to international currency policy. The report did note China's "failure" to be more transparent around activities at state-owned banks warrants close monitoring. Those banks can act in currency markets with official guidance due to close relationships with China's central bank.