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USD/CNH Firms Modestly, PBoC Cautions Against Excessively Low Rates

CNH
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USD/CNH drifted a little higher post the Asia close on Thursday, but couldn't firm back above 7.2550. We track near 7.2500 in early Friday dealings, after losing less than 0.10% in CNH terms for Thursday's session. USD/CNY spot finished up near 7.2390, so close to unchanged.

  • Slightly higher USD/CNH levels were consistent with a broader USD rebound, BBDXY up 0.14%, although CNH outperformed most of the major currencies. US yields climbed post comments from the Fed's Williams around not rushing towards rate cuts.
  • We saw further comments from the PBoC (and head of SAFE) around the central bank's goal to keep yuan basically stable. This followed earlier comments/statements on Wechat from the PBoC vowing to avoid FX overshooting.
  • The head of the PBoC's monetary policy also cautioned against excessively low interest rates (per BBG), which may raise the hurdle for fresh/additional monetary easing from the authorities. On balance this should support the yuan, although near term direction will still be influenced by USD/US yield moves.
  • Elsewhere, the Golden Dragon index rose nearly 1% in US, the first gain in a week. Onshore equities finished a touch higher yesterday, up 0.12% for the CSI 300.
  • On the data front, we may see March FDI figures today (or tomorrow). Otherwise, the next focus point will be on Monday's 5-yr and 1-yr LPR outcomes, which are expected to be held steady.
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USD/CNH drifted a little higher post the Asia close on Thursday, but couldn't firm back above 7.2550. We track near 7.2500 in early Friday dealings, after losing less than 0.10% in CNH terms for Thursday's session. USD/CNY spot finished up near 7.2390, so close to unchanged.

  • Slightly higher USD/CNH levels were consistent with a broader USD rebound, BBDXY up 0.14%, although CNH outperformed most of the major currencies. US yields climbed post comments from the Fed's Williams around not rushing towards rate cuts.
  • We saw further comments from the PBoC (and head of SAFE) around the central bank's goal to keep yuan basically stable. This followed earlier comments/statements on Wechat from the PBoC vowing to avoid FX overshooting.
  • The head of the PBoC's monetary policy also cautioned against excessively low interest rates (per BBG), which may raise the hurdle for fresh/additional monetary easing from the authorities. On balance this should support the yuan, although near term direction will still be influenced by USD/US yield moves.
  • Elsewhere, the Golden Dragon index rose nearly 1% in US, the first gain in a week. Onshore equities finished a touch higher yesterday, up 0.12% for the CSI 300.
  • On the data front, we may see March FDI figures today (or tomorrow). Otherwise, the next focus point will be on Monday's 5-yr and 1-yr LPR outcomes, which are expected to be held steady.