December 30 (Reuters) – Beijing is clearly worried on China’s slowing growth, pulling political levers one by one to support the economy. Despite gloomy economic forecasts , the yuan therefore remained stable and could stay like this next year.
Recent announcements from lower taxes , cut to bank reserve requirement ratios (RRR) and benchmark interest rate, and plan to preload infrastructure spending corroborates all predictions of economic deterioration if left unchecked.
If predictions of further easing of monetary policy and fiscal support prove correct, the yuan could rebound on renewed economic hope. But the bulls should temper their optimism.
China’s zero tolerance approach COVID-19 will significantly affect production. Possible government-ordered plant closures reduce pollution before the Winter Olympics will also slow industrial production in the first quarter.
As the Chinese economy falters, the The post-pandemic recovery in the United States appears to be in full swing, exacerbating inflationary pressures and probably forcing the Federal Reserve raise interest rates sooner. Although well anticipated, this should still support the USD / CNH.
The pair is at its lowest after the People’s Bank of China recently survey of foreign banks change RRR to stem the appreciation of the yuan. If the USD / CNH closes above 6.3786 on Friday, signaling a breakout of the Bollinger’s weekly downtrend channel, a short hedge could push the dollar up towards its 50-week moving average near 6.4500.
While Beijing’s more proactive stance is positive for the economy and therefore for the yuan, don’t bet that it is everyone’s favorite Asian currency next year.
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(Ewen Chew is a market analyst at Reuters. The opinions expressed are his own. Edited by Sonali Desai)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.