Remains vulnerable as Fed delays rate cuts and domestic macro weakens
CNY (7.169) ▲
- The yuan has unsurprisingly reversed its December’s gains against the USD. This is partly attributed to the strengthening of the USD index (DXY), driven by resistance from Fed officials against an early easing and ongoing weaknesses in the Chinese economy. Despite this, the yuan's losses have been mitigated by improving NBS PMI readings, widening trade surplus and various stimulus measures.
- The yuan may continue to trade near the 7.20/USD level in February, as the DXY is expected to remain elevated due to Fed's Powell dismissing the possibility of a rate cut in March. Also, the persisting weakness in Chinese asset markets may continue to exert pressure on the yuan. However, measures such as policy easing by the People’s Bank of China and government stimulus may help to curb excessive outflows.
Download Full Content: