USD/CNH Testing 50-day EMA Support, PBoC Will Use Policy Tools To Support The Recovery

USD/CNH is tracking lower, getting close to the 7.1300 level (lows near 7.1310, last back in the 7.1330/40 region). This is testing support at the 50-day EMA, which comes in around 7.1325. Broader USD sentiment remains softer, with the BBDXY down a further 0.2% to 1198. The onshore and HK equity tone remains positive, albeit not as firm as yesterday.

• Earlier we had a press briefing from the PBoC led by Deputy Governor Liu Guoqiang. It covered a wide range of issues, with the central bank pledging to undertake targeted and forceful monetary policy and strengthen counter-cyclical adjustments to spur the economic recovery. Facilities such as the RRR and MLF will be used, with ample policy room to deal with the challenges/unexpected factors.
• The authorities noted patience is required as the economy emerges from the pandemic.
• The central bank sees inflation ticking down further in July, but doesn't see deflationary risks in H2 (projecting CPI to firm closer to 1% by year end).
• The PBoC appeared relatively calm around the FX backdrop, reiterating previous guidance that FX based policy tools will be used as needed to prevent sharp swings in the yuan.
• Note we get an economic update next Monday, with Q2 GDP out, along with June activity prints.