Yuan Strengthens For Second Session

The PBOC kept the LPR rates on hold as expected, and net injected a bumper CNY 278bn via 7-day reverse repos. The PBOC has offered a combined CNY 353bn of liquidity in the past two days, after it had drained liquidity for six consecutive days previously. The withdrawals have been small, which was seen as a signal the PBOC are reducing liquidity following large injections ahead of year end without hinting to markets they are preparing to tighten policy.

• The perception that the PBOC were considering tighter policy has faded in recent sessions. Chen Yulu, vice-governor of the PBOC, said last week that monetary policy would focus on maintaining necessary support for economic recovery. Yesterday the the head of the National Development and Reform Commission of the People's Republic of China (NDRC) said there will be no sudden shift in monetary policy in 2021.
• Despite this, a weaker greenback and lack of movement on the LPR rates has seen the yuan strengthen for a second session, USD/CNH last down 91 pips at 6.4717. For bears key focus is a break of an ascending trend line from January 5, at 6.4640. It's worth mentioning that the 200-DMA offers immediate support near 6.4715