Chinese Yuan: Authorities Seen Slowing the Pace of Appreciation – OCBC

Near-term Renminbi (RMB) appreciation momentum has eased after the FX deposit reserve requirement ratio was raised to 6%, as Chinese policymakers seek to temper rapid currency gains. Against this backdrop, OCBC strategists Sim Moh Siong and Christopher Wong anticipate consolidation in USD/CNH, although the bank retains a measured bias towards RMB appreciation. In assessing the degree of policy restraint, they regard daily fixings as critical and flag nearby USD/CNH resistance and support levels.

Will RMB consolidate as PBoC pushes back against strength?

"USD/CNH rose to intra-day high of 6.6860 at one point before easing lower. The short squeeze came following the PBoC’s announcement (on Tue) to raise the FX deposit reserve requirement ratio by 2ppts to 6%."

"The policy measure tempered near-term appreciation momentum, with further USD/CNH upside not ruled out as markets reassess the authorities’ tolerance for currency strength. The daily fixings remain key in gauging the extent of policy restraint."

"We continue to view the latest measure as an attempt to manage the pace of RMB gains rather than alter the broader direction of travel. While near-term RMB consolidation or a further pullback cannot be ruled out, our measured appreciation bias remains intact, particularly if broader USD weakness becomes more sustained."

"Daily momentum turned mild bullish while recent rise in RSI moderated. Some consolidation is likely to take hold unless fixing surprises."

"Resistance at 6.6760 (21 DMA), 6.6840 (50% fibo retracement of Sep high to Nov low) and 6.6940/60 levels (61.8% fibo, 50 DMA). Support at 6.6620 (23.6% fibo)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)