The USD/CNH currency pair has eased as policymakers have continued to maintain the daily fix below 7.20. Notably, the CNY fix was set stronger at 7.1934 compared to the previous day’s 7.1996. As of the latest record, the pair was at 7.2838, as pointed out by OCBC’s FX analysts Frances Cheung and Christopher Wong.
The CNH is likely to remain under pressure. The fixing pattern indicates that the People’s Bank of China (PBoC) is taking all necessary measures to prevent the RMB from overly weakening following the initial sharp depreciation that occurred after the outcome of the US election. Moreover, the headlines regarding tariffs serve as a constant reminder that broader tariffs could be implemented once US President-elect Donald Trump officially takes office in January 2025. The PBoC may continue to restrain the RMB from excessive weakening through the daily fix. However, if the situation demands, it might also have to utilize an offshore funding squeeze to ensure more effective control over the currency’s performance.
The CNH may still face pressure due to various domestic factors. Expectations for further interest rate cuts at home exist while the economic recovery remains uneven. The Caixin services Purchasing Managers’ Index (PMI) was weaker than expected, although the manufacturing PMI was stronger than expected. Additionally, the housing market has displayed very mixed signs of stabilization. While there might be other stimulus support measures to boost the domestic economy, these are only mitigating factors at best.
Meanwhile, the bias for the RMB might be inclined towards further weakening, despite the possibility of some short-term technical corrections. The daily momentum is mildly bullish, and the Relative Strength Index (RSI) shows signs of turning from near-overbought conditions. A corrective pullback cannot be ruled out. In terms of key levels, support can be found at 7.2745 and 7.2440 (the 21-day Moving Average), while resistance lies at the 7.32 and 7.3450 levels.
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