FXStreet reports that economists at HSBC believe the divergent monetary policy between China and the US has been a new normal.

“This is the first time in more than a year since the State Council mentioned using RRR cuts as one of the monetary policy tools. In our economists’ view, this opens a door for a possible RRR cut in the coming months, if not weeks, and it is more likely that the cut is a targeted one with the aim of supporting small businesses.”

“A narrower CNY yield advantage in 2021 is a key reason behind our view that USD/CNY will gradually trade higher in 2H. However, the absolute yield advantage of the CNY is still high at the moment. Hence, if markets start to price in a more accommodative stance of the PBoC or when a (targeted) RRR cut is delivered, it may not trigger significant CNY weakness. Rather, it should serve to slow down the CNY's outperformance.”

“A higher USD/CNY has played into our thinking that the broad USD should begin to bottom in the months ahead. After all, the CNY’s performance is a key determinant of the broad USD overall.”