USD/CNH: Measured pace - OCBC

USD/CNH continued to trade lower in subdued ranges near its recent lows. USD/CNH last at 7.1560 levels. Daily momentum is showing tentative signs of turning mild bearish but decline in RSI shows signs of moderation, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Daily momentum is showing signs of turning mild bearish

"Support at 7.15, 7.1460 (61.8% fibo retracement of 2024 low to 2025 high). Resistance at 7.1820 (21 DMA). Consistent trend of CNY fix being set stronger (than previous day), relatively upbeat Caixin PMI manufacturing, confirmation of trade deal framework between US and China as well as a softer USD environment should continue to point to a more constructive outlook for RMB."

"But at the same time, we believe policymakers will continue to pursue setting the USD/CNY fix at a 'measured pace' to also help anchor relative stability in RMB overall. Any sharp or rapid RMB appreciation may risk triggering exporters rushing to sell USD holdings and that cycle (if it happens) may result in excessive RMB volatility and strength."

"This may hurt exporters' margins and have wider repercussion on deflation. A more gradual pace of appreciation could repair investor sentiments and encourage a return of foreign inflows."