Chinese Yuan: OCBC sees authorities tempering pace of appreciation

The FX deposit reserve requirement ratio has recently risen to 6%. The increase has checked near-term Renminbi (RMB) appreciation momentum as Chinese policymakers seek to slow rapid gains. Against this backdrop, OCBC strategists Sim Moh Siong and Christopher Wong expect USD/CNH to consolidate, although the bank retains a measured RMB appreciation bias. To assess the degree of policy restraint, they focus on daily fixings, while flagging nearby USD/CNH resistance and support levels.

6% FX reserve requirement: RMB consolidation as PBoC restrains gains

"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)."

(An editor reviewed this article, which was produced with assistance from an Artificial Intelligence tool. Learn more.)