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Yuan Treads Water, PBOC Takes Centre Stage

CNH

Spot USD/CNH oscillates around neutral levels, with participants digesting the latest portion of PBOC rhetoric/action. The rate changes hands at CNH6.3903, virtually unchanged on the day.

  • A break under Nov 16 low of CNH6.3616 would pleased bears, giving them a green light for targeting May 31 cycle low of CNH6.3525. Meanwhile, gains past Nov 11 high of CNH6.4077 would bring the 50-DMA at CNH6.4213 into play.
  • Beijing's rhetoric has received increased scrutiny as the yuan continues to trade on a relatively firm footing. China Foreign Exchange Committee (a forum sponsored by the PBOC) urged banks to limit speculation and step up risk management.
  • The central USD/CNY mid-point was set at CNY6.3952 today, 21 pips above sell-side estimate, which some may interpret as a sign that the central bank are trying to limit yuan strength (see earlier bullets for more colour).
  • Elsewhere, the PBOC kept its Loan Prime Rates unchanged, in line with expectations. The decision came after the central bank tweaked language in their quarterly report released Friday, which some interpreted as a shift towards a more supportive monetary policy stance.
  • Looking ahead, China's industrial profits will take focus later this week.
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