USD/CNH to Remain Sideways in Short Term, According to UOB

USD/CNH reached its 11-month high at CN¥7.3681 in September, just below its October 2022 peak at CN¥7.3773. Since then, it has dropped to CN¥7.2392, which was its early September low, and then to the CN¥7.2596 mid-September trough. The currency has since gradually risen again.

Fed member Kashkari’s speech on Monday, which predicted another rate hike, helped the US dollar gain value despite its ten consecutive weeks of gains.

If USD/CNH rises above last week’s high at CN¥7.3214, it could reach the August and September highs at CN¥7.3497 and CN¥7.3681. Immediate upside pressure will be maintained if the cross stays above Monday’s CN¥7.2946 low. If it falls below it, the July-to-September uptrend line can be seen at CN¥7.287.

UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia believe that USD/CNH continues to indicate further side-lined trade in the short-term horizon.

The People’s Bank of China has set the reference rate for the onshore yuan (CNY) for the trading session ahead.

The USD/CNY is the onshore yuan, which is allowed to trade within a 2% range from the daily reference rate. On the other hand, the offshore yuan is known as CNH, and there are no restrictions on its trading range against the USD. If the rate turns out to be significantly stronger or weaker than expected, it is usually considered a signal from the PBOC. The previous close was noted at 7.3125.

There seems to be a significant divergence between the modeled estimate and the actual rate. The daily reference rate is currently stuck on the 7.17 big figure, and the People’s Bank of China is determined to keep the yuan from falling further. Today’s mid-rate is the strongest for the CNY since August 14.

It’s worth noting that China will be going on holiday on Friday and won’t be back until October 9. In other news, the PBoC has stated that it’ll step up its policy coordination and implement monetary policy forcefully and precisely.

The PBOC has injected 200bn in open market operations (OMOs) via 7-day RR, and the rate has been set at 1.80%. Additionally, the PBOC has injected 417bn in open market operations (OMOs) via 14-day RR, and the rate has been set at 1.95%. Today, 205bn yuan of RRs will mature, resulting in a net 412bn yuan injection on the day in OMOs. The 14-dayers will help provide liquidity over the week-long holiday coming up.

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