The People’s Bank of China (PBoC) hawkish surprise suggests a prioritization of CNY stability now that 10y CGB yields no longer offer a premium over 10y UST yields. Analysts at Credit Suisse now expect USD/CNH to trade in a 6.35-6.50 range.

Upper range of 6.35-6.55 looks unlikely in the short-term

“Despite the grim economic outlook, the PBoC surprised on the hawkish side on 15 April by declining to cut the MLF rate and cutting the RRR by only 25 bps (vs expectations of 50 bps). We think the hawkish surprise shows that the PBoC is prioritizing CNY stability now that onshore 10y CGB yields no longer offer a premium over 10y UST yields..” 

“We now expect USD/CNH to trade in a range of 6.35-6.50 for the remainder of the quarter as US yields rise, with the pair eventually trading above 6.50 in Q3.” 

“The upper range of our previous Q2 USD/CNH forecast of 6.35-6.55 looks unlikely in the short term while the PBoC suppresses FX volatility.”