China’s latest rate cut did little to dent the CNY’s recovery, DBS’ FX strategist Philip Wee notes.

USD/CNY pays more attention to Fed than PBOC

“Monday’s 10 bps reduction in the 14-day reverse repo rate to 1.85% paled compared to last Wednesday’s 50 bps decline in the Fed Fund Rate to 4.75-5.00%. The People’s Bank of China was ensuring ample liquidity ahead of the National Day holidays starting October 1. Conversely, the Fed’s easing sought to avert a further cooling in the US labour market.”

“USD/CNY peaked at 7.2775 on July 24 before declining to the year’s low of 7.0428 last Friday. Despite yesterday’s 0.1% rise to 7.0521, USD/CNY held below last year’s closing level of 7.10, confident that US recession fears have now overshadowed China’s slowdown worries.” 

“To break below the psychological level of 7.00 this year, USD/CNY will need the DXY index to depreciate below 100, a scenario we have forecasted through 2025.”