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BUZZ-COMMENT-China bulls rejoice as PBOC leaves yuan to markets

Credit: REUTERS/DADO RUVIC

Comments from China's central bank governor Yi Gang on Sunday have given yuan bulls a second wind and the CNH looks set to continue its uptrend with renewed momentum.

Oct 20 (Reuters) - Comments from China's central bank governor Yi Gang on Sunday have given yuan bulls a second wind and the CNH looks set to continue its uptrend with renewed momentum.

Yi noted that the yuan's significant appreciation versus the U.S. dollar in the past three months reflected interest-rate differentials and that the market should decide the exchange rate. This implies that the People's Bank of China considers the current yuan uptrend as fundamentally driven and not merely speculative .

U.S-China interest-rate differentials are only set to widen as China's economic recovery from the pandemic gathers pace, boosting the yuan further. China is the only major economy expected to report growth in 2020; a strong rebound in its September retail sales and industrial production showed the recovery gaining momentum into the fourth quarter.

This suggests less room for PBOC easing, while the Federal Reserve remains clearly committed to its lower-for-longer mantra on U.S. rates .

Yi's comments should also dispel fears that the PBOC was seeking to stem yuan appreciation by tweaking its rules on foreign exchange forwards last week .

USD/CNH support at the 2019 March-April lows of 6.6710-6.6770 is vulnerable, and a break would result in a gradual decline to 6.6000.

For more click on FXBUZ

CNH: https://tmsnrt.rs/34dsizy

China's V-shaped recovery?: https://tmsnrt.rs/342QXXt

(Krishna Kumar is a Reuters market analyst. The views expressed are his own.)

((krishna.k@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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