The USD/CNY bias is bearish-to-range-bound, as the currency pair is currently below the 90-day average and in the lower half of the 3-month range.
Key drivers:
- Rate gap: The Federal Reserve's potential rate cuts contrast with the People's Bank of China's support for the yuan, which may widen the yield differential.
- Risk/commodities: Oil prices remain elevated, impacting the broader market that hinges on global trade, potentially underscoring the yuan's vulnerabilities against the dollar.
- China's economic data indicates a stronger-than-expected growth of 5.2%, suggesting a recovery that could strengthen the yuan against the dollar moving forward.
Range: The USD/CNY is expected to hold near current lows, reflecting limited movement within its recent range.
What could change it:
- Upside risk: A surprise hawkish turn from the Federal Reserve could boost the USD.
- Downside risk: Continued weakness in Chinese economic indicators might pressure the yuan further.