Chinese Yuan: Stimulus hopes as PBoC defends 6.8 – TD Securities

TD Securities strategists judge China’s April data as weak, citing higher Oil prices and soft consumer sentiment. They expect targeted fiscal stimulus focused on infrastructure and see the PBoC remaining cautious on easing. They say today’s data may unsettle CNY bulls but anticipate the central bank will defend 6.8 in USD/CNY, potentially by raising the FX Reserve Requirement Ratio (RRR) to 6%.

Weak data but policy support expected

"China's April economic data was uninspiring, reflecting both the impact of higher oil prices on output and weak consumer sentiment."

"High oil prices are straining traditional Chinese industries, especially chemicals, while high-tech sectors like communication equipment and pharmaceuticals continue to grow and offset some of the negative impact."

"Consumer sentiment remains weak, reflected in sluggish consumer goods sales and declines in discretionary spending, though upcoming events like the "618 festival" and the trade-in program subsidies may offer temporary support."

"We expect targeted fiscal stimulus from Beijing, especially on infrastructure investment rather than large-scale measures. The PBoC is also likely to remain more cautious on monetary easing. The poor April economic report card may spur China to quickly work out the details for the Board of Trade to boost exports in the latter part of the year."

"Today's economic data may unsettle CNY bulls, but renewed stimulus discussions offer hope. We expect the PBoC to defend the 6.8 level for now, possibly raising the FX RRR to 6% as the pace of USD/CNY gains stands in contrast to the weakness in other USD-Asia FX pairs."

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