USD/CNY: Tightening of Chinese monetary policy lent continued support to the CNY – Lloyds Bank

Analysts at Lloyds Bank explain that further tightening of monetary policy in China lent continued support to the CNY versus the US dollar over the past month as USD/CNY reversed its trend upward in early March to recently trade just below 6.90.

Key Quotes

“In addition, relatively firm levels in other Asian FX post the US Fed decision this month have also eased upward pressure on the CNY. Zhau Xiaochuan, China’s central bank governor, suggested in March that the CNY should maintain a relatively stable path despite further interest rate hikes from the Fed. Still, it is unclear whether China’s highly leveraged economy could further accommodate significantly tighter monetary policy.”

“Granted, recent developments suggest a more modest path of depreciation than we anticipated last month, but we still view the CNY as modestly overvalued against the US dollar. Our latest fair-value estimate for the CNY remains at 7.10 versus the US dollar.”