Via Bloomberg
Yuan bulls should have their hand strengthened this week with the People's Bank of China seen as unlikely to follow a Fed rate cut.The Federal Reserve is now seen as definitely cutting tomorrow. However, the chances of a 50bps cut now seem remote to me and a 25bps cut is most likely. The PBOC followed the Fed for some of the time as the Fed hiked, raising it's repo rate by a smaller amount than the US's increase. However, comments from Governor Yi Wang's indicate that they are unlikely to follow the Fed's cuts. Wang said, ' Lowering interest rates is mainly to tackle deflationary risks, but China's inflation is moderate at the moment,' with consumer price gains at 2.7% Wang said, ' Therefore, the current interest rates level are appropriate, or close to a 'golden' level, a comfortable level.
A PBOC staying put should support the Yuan going forward. In terms of the yuan this week there is also a risk for the Caixin manufacturing PMI out later with a risk that a larger miss potentiallu helps to send USD/CNH back up towards the 7.00 level.
