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CNH: China to keep Yuan Strong |
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§ PBOC
eased again and a monetary conditions index (MCI) that
we construct reveals that the current strength of the yuan requires a
larger yuan injection to maintain same degree of monetary easing as previous
easing episodes, which explains why PBOC needs such a large 100bps RRR cut.
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The strong
exchange rate stance will be held in the hope of slowing capital outflow. Both
negate the impact of its latest liquidity injections. Between keeping the yuan
strong and capital outflow stemming from CNY depreciation expectations, PBOC
is choosing the former which is in line with its capital account
liberalization agenda.
§ On the
daily chart, we see room for USD/CNH to head lower upon a clean break of the
200-DMA at 6.1900. That would break the neckline of the head and shoulders
pattern that was formed since last Dec towards 6.15-figure.
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