USD/CNY: Stability appears to be the key theme - Westpac

With the March FOMC out of the way, stability appears to be the  key theme for USD/CNY in the short-term, suggests Frances Cheung, Research Analyst at Westpac.

Key Quotes

“First, there is minimal capital outflow pressure from China. Second, the CNY has continued to be fixed at fairly neutral levels compared with basket move in recent sessions, while the RMB NEER has been trading in a tight range. Third, the CNH has moved broadly in tandem with the CNY, suggesting no investor excitement. Within this stability, there is a mild downward bias to USD/CNY if the Fed outlook fails to give the dollar a boost.”

“The PBoC raised the 7-day OMO reverse repo rate by 5bp to 2.55%. The central bank had a valid reason to hike as there was still a gap with market rate. Their action is also consistent with their prudent stance on which our interpretation is neutral to mildly tight. The fact that they did not inject liquidity alongside the hike, as some might have hoped, underlines our view that onshore money market liquidity is likely to tighten going forward.”