USD/CNH pierces 7.000 mark despite PBOC’s no rate change

• USD/CNH ignores no rate change from the PBOC.
• The latest OMO from PBOC has been huge.
• Mixed clues concerning the domestic economy confront trade optimism and political challenges.

USD/CNH surges to 7.0030 after the People’s Bank of China (PBOC) announced no change in its benchmark Loan Prime Rates (LPR) during early Friday.

The PBOC held one year and five year LPR unchanged to 4.15% and 4.8% respectively. The Chinese central bank cut down the Yuan reference rate to 7.0020 from 7.0025 during the daily announcement on Friday.

On Thursday, the PBOC injected 280 billion Chinese Yuan via Open Market Operations (OMO) and signaled a rate cut. The Chinese central bank stopped OMO for 20 days till Wednesday when it announced the first big injection through Reverse Repos (RR).

China’s economy has been witnessing mixed clues with the Premier Li Keqiang citing major pressure on the dragon nation during the year to come. Earlier during the month, the Asian Development Bank (ADB) cut China’s growth forecast for this year and the next to 6.1% and 5.8%, respectively, from the 6.2% and 6.0% forecasts announced in September.

At the political front, Canada is pushing the US to stop brakes on its trade journey with Beijing unless it releases the two Canadians held for a year. Also, the dragon nation has recently cited increasing risk from North Korea while also criticizing the US interruption in internal matters.

Looking forward, the trade news is likely to stay as the main driver for the pair while final reading of the US third quarter (Q3) Gross Domestic Product (GDP) may offer immediate direction.

Technical Analysis

21-day Exponential Moving Average (EMA) near 7.015 offer immediate resistance to the pair ahead of 100-day EMA near 7.025. Alternatively, 200-day EMA at 6.96 and the monthly bottom close to 6.92 can limit immediate declines.