Liquidity Injection
The Chinese central bank (PBoC) announced its latest easing measures today, noting that it had increased the amount of funding offered through its seven-day reverse repos to 50 billion yuan. This is a stark increase on the 10 billion yuan typically injected via the mechanism. The PBoC noted that it was doing so in a bid to “maintain stable liquidity conditions at the end of the month.” This move was announced on the back of a separate announcement on Tuesday which note that the central bank would be auctioning a further 70 billion yuan in one-month cash deposits at the end of the week.
Pushing Back Against Higher Rates
The move marks a visible attempt by the bank to ease monetary conditions and comes amidst recent volatility in Chinese rates which has seen inter-bank rate shitting their highest levels for several months. The increase had been linked to rapidly increasing demand for government bonds as well as elevated demand for month-end funding.
Uncertainty Creates Market Volatility
Given some of the recent regulatory shocks in China, such as the crackdown on the crypto-market, as well as the crackdown on industries receiving foreign funding, monetary conditions had tightened somewhat. These latest moves are clearly an effort on behalf of the government to offset some of the damage caused by those initiatives which critics warned might damage the recovery there. The government recent unveiled its five year plan for strengthening the economy, which includes bolstering regulatory control over key sectors such as technology and healthcare.
Further Easing Expected
Looking ahead, the market is broadly expecting more formal easing from the PBoC, such as another reduction in the bank’s required reserve ratio in a bid to help keep sentiment supported and foster the ongoing recovery. The recent uptick in Delta variant cases in China, as well as extreme flooding in parts of the country, has highlighted the ongoing uncertainty and downside risks which still require attention.
Technical Views
USDCNH
The latest test of the 6.4964 resistance level has seen price turning lower once again. The market has now broken below the rising channel from May lows and, while below here, is at risk of heading lower, in line with bearish MACD and RSI indicators. If we do trade lower form here, the next support to note will be the 6.4490 level, ahead of deeper support at 6.4018.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.