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Weakens On RRR Cut, But No Change Expected In LPRs Today, Xi Visiting Russia

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USD/CNH rebounded near the Asia close on Friday as China announced a cut to the RRR rate. From the low 6.8600 region the pair push higher towards 6.8950 before selling interest capped the move. After finishing the NY session on Friday around 6.8860, we sit slightly lower in early dealings today (last around 6.8820). The RRR cut contributed to modest China currency underperformance for Friday's session, with the NEER edging back towards 126.07 (J.P. Morgan index).

  • The 25bps RRR cut came as somewhat of a surprise on Friday and has renewed focus on today's LPR outcomes. The consensus remains for the 5yr (4.30%) and 1yr (3.65%) rates to remain unchanged, although the Friday RRR cut has likely raised expectations of lower interest rates at some stage in H1.
  • Recent data outcomes showed inflation coming in below expected, while activity indicators were mixed. At the same time demand for credit has been picking up.
  • All else equal, the prospect of easing monetary policy conditions should weigh on CNY and the NEER basket, although in the near term, global developments and this week's Fed decision are likely to dominate in the near term.
  • The other focus point will be President Xi's visit to Russia, which kicks off today. A letter signed by Xi, which was published in local Russia media, stated China and Russia need to boost trade ties and that relations need to be kept at a high level between the two nations.
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USD/CNH rebounded near the Asia close on Friday as China announced a cut to the RRR rate. From the low 6.8600 region the pair push higher towards 6.8950 before selling interest capped the move. After finishing the NY session on Friday around 6.8860, we sit slightly lower in early dealings today (last around 6.8820). The RRR cut contributed to modest China currency underperformance for Friday's session, with the NEER edging back towards 126.07 (J.P. Morgan index).

  • The 25bps RRR cut came as somewhat of a surprise on Friday and has renewed focus on today's LPR outcomes. The consensus remains for the 5yr (4.30%) and 1yr (3.65%) rates to remain unchanged, although the Friday RRR cut has likely raised expectations of lower interest rates at some stage in H1.
  • Recent data outcomes showed inflation coming in below expected, while activity indicators were mixed. At the same time demand for credit has been picking up.
  • All else equal, the prospect of easing monetary policy conditions should weigh on CNY and the NEER basket, although in the near term, global developments and this week's Fed decision are likely to dominate in the near term.
  • The other focus point will be President Xi's visit to Russia, which kicks off today. A letter signed by Xi, which was published in local Russia media, stated China and Russia need to boost trade ties and that relations need to be kept at a high level between the two nations.