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Yuan Firms Despite Talk Of Potential For RRR Cut

CNH

Talk of a potential RRR cut has been doing the rounds after Premier Li said last Friday that China could take this step at proper time to support local SMEs. The Securities Daily suggested that Beijing could trim the RRR as soon as this month, but the Economic Daily noted that Li's comments do not indicate a clear policy change.

  • The PBOC set its central USD/CNY mid-point at CNY6.3702 today, 12 pips above sell-side estimate. The yuan has shrugged off the fixing announcement.
  • Tensions between the U.S. and China have resurfaced ahead of the Biden-hosted Democracy Forum this week, which has drawn Beijing's criticism over Taiwan's participation. Separately, U.S. Defence Sec Austin criticised China's coercive activity in the Indo-Pacific and pointed to space and cyberspace as new sites of competition.
  • China's economic calendar is quite busy this week. Trade balance will be published tomorrow, while inflation data come out Thursday.
  • USD/CNH has slipped this morning, even as the DXY has crept higher. The rate last changes hands at CNH6.3706, 42 pips lower on the day. A fall through Dec 1/Nov 16 lows of CNH6.3631/16 would open up May 31 low of CNH6.3525. Bulls look for a jump above Nov 26 high/round figure of CNH6.3999/6.4000.
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