USD/CNH: Nearing support – OCBC

USD/CNH continued to trade in subdued ranges near its recent lows. Consistent trend of CNY fix being set stronger, relatively upbeat PMIs, confirmation of trade deal framework between US and China as well as a softer USD environment should continue to point to a more constructive outlook for RMB. USD/CNH last at 7.1621 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Daily momentum is not showing a clear bias

"But at the same time, we believe policymakers will continue to pursue setting the USDCNY fix at a 'measured pace' to also help anchor relative stability in RMB overall. Any sharp or rapid RMB appreciation may risk triggering exporters rushing to sell USD holdings and that cycle (if it happens) may result in excessive RMB volatility and strength. This may hurt exporters’ margins and have wider repercussion on deflation. A more gradual pace of appreciation could repair investor sentiments and encourage a return of foreign inflows."

"Daily momentum is not showing a clear bias while RSI shows signs of falling. Support at 7.16, 7.1460 (61.8% fibo retracement of 2024 low to 2025 high). Resistance at 7.1820 (21 DMA). In the 2Q MPC meeting statement released last Fri (meeting held on 23rd Jun), PBoC said it would adjust the pace and intensity of policy implementation in response to domestic and global economic and financial conditions."

"Statement also noted that China’s economy shows a positive trend, social confidence continues to be boosted, and high-quality development is being solidly advanced, but challenges remain such as insufficient domestic demand, persistently low-price levels, and multiple risk factors. Statement further indicated that it is necessary to implement a moderately accommodative monetary policy, strengthen counter-cyclical adjustments, better leverage the dual functions of monetary policy tools in terms of both quantity and structure, increase coordination between monetary and fiscal policies, and maintain stable economic growth and prices at reasonable levels."