Fri, Sep 30, 2022 @ 07:21 GMT
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Impact of PBoC FX RRR hike quickly fades, Yuan struggles to extend rebound

The People’s Bank of China’s starts today to raise foreign exchange risk reserve ratio from 0% to 20%. It’s a move to stabilize the Yuan and curb capital outflow and was announced Friday after close. The move gives some support to Chinese and Hong Kong stock today but the impact seems to fade quickly. The Shanghai Composite index, SSE, edged higher to 2760.47 but it’s back down -0.77% at 2719.38 at the time of writing. It’s still more likely than not to revisit 2700 handle and possibly 2016 low at 2638.30.

Hong Kong HSI hits as high as 28074.53 earlier today but quickly pares back some gain. it’s now up only 0.70% at 27870.07. The index is pressing a key fibonacci level at 27671.56. 38.2% retracement of 18268.09 (2016 low) to 33484.07 (2018 high). Whether this support could hold will very much depends on whether SSE could defend 2700. For now, it’s not optimistic.

USD/CNH (offshore Yuan) also stabilized at around 6.84 at the time of writing. There is no follow through selling after the spike move on Friday, following PBoC’s announcement. For now, 55 H EMA is capping the upside and more decline is mildly in favor back to 6.7703 support. But a break above the EMA could prompt another selloff in the Yuan back to 6.9. That would give the Chinese government a lot of headache.

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