Chinese Yuan (CNH) Sees Muted Reaction Following PBoC Rate Cut

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USD/CNH Price Analysis & News

  • Market Rethink on Lofty Growth Expectations Prompt Unwind of Reflation Trades
  • China Cuts RRR

Market Rethink on Lofty Growth Expectations Prompt Unwind of Reflation Trades

The past week has brought about a re-think of market expectations over the economic outlook, with consensus reflation trades taking a hit as optimism over lofty growth forecasts begin to dwindle. Among factors prompting the re-pricing has been the rising concerns over the spread of the Delta variant, slowing economic activity in China, alongside the recent US ISM Non-Manufacturing PMI figures dipping from elevated levels.

China Cuts RRR: At the time of writing, the PBoC has lowered the reserve requirement ratio by 50bps, which will effective as of July 15th, releasing long-term liquidity of around 1trln Yuan. In reaction to the move, USD/CNH briefly tested the 6.50 handle, however, given that the rate cut had been widely touted over the past week, the move had been muted. Elsewhere, both the Aussie and Kiwi have picked up in response, although, the sustainability of the move will likely depend on whether equity markets can remain stable.

Chinese Yuan Chart: Daily Time Frame

Source: Refinitiv

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