USD/CNY trended higher last week to close almost 550 pips higher at around 6.87. Rising US-China tensions are set to keep the pair well supported for now, economists at Commerzbank report.

Loan prime rates on hold

“The banks’ loan prime rates (LPRs) for February remained unchanged at 3.65% and 4.3%, respectively.”

“We think the PBoC may cut the MLF rate and banks will subsequently reduce the LPRs as early as March following the annual session of the National People’s Congress which is scheduled to begin on 5 March.”

“Macro policy stimulus will likely be announced during the annual session, and it will be a good timing for the PBoC to cut rates and signals that it stands ready to support the economic recovery.”

“Heightened US-China tensions could keep USD/CNY well supported near term.”