2023 June

CHINESE YUAN (CNH) NEWS AND ANALYSIS
US-China relations take a step backwards and markets rue lack of stimulus
USD/CNH rises back to near overbought territory despite near-term USD consolidation
GBP/CNH soars well into overbought territory but interest rate differentials support bullish continuation nonetheless
The analysis in this article makes use of chart patterns and key support and resistance levels.

Already fragile US-China relations took a step backwards yesterday after U.S. President, Joe Biden’s insensitive comments about the Chinese leader. The backlash comes one day after U.S Secretary of State Antony Blinken appeared to set the foundation for a return to warmer relations when he made the trip to China – the first visit by a secretary of state for five years.

Yesterday, the People’s Bank of China moved to ease benchmark borrowing rates in an attempt to stimulate lending to support the economic recovery. One 10 basis point cut is unlikely to get the economy firing on all cylinders but appears to be a sign of more to come. The Bank could also lower the current reserve ratio requirement, freeing up more capital within the system. The reserve ratio sets the minimum amount of commercial bank deposits that are required to be kept with the central bank as a buffer to meet increased withdrawals or external shock.

USD/CNH TECHNICAL ANALYSIS
USD/CNH has been a one-way market since early February despite mixed US dollar performance – which has rallied and sold off on the back of inflation sensitive news/data. With markets struggling to price in one, never mind two more hikes from the Fed, after officials foresee the Fed funds rate settling between 5.5% – 5.75%. Despite the slowdown in US rate expectations, actual rates in China have dropped, improving US-China interest rate differentials which supports the bullish trend.

After breaching the psychologically important 7.0000 mark, the pair tests 7.1965 with 7.2570 providing the next level of resistance.

— Written by Richard Snow for DailyFX.com