USD/CNH’s decline resumed overnight and hit as high as 6.9446 so far. For now, the selloff in Yuan looks unstoppable as there is no end in sight in US-China trade war, which just escalated. But Reuters reported, based on unnamed source, that the PBoC won’t allow USD/CNH to break through 7 handle.
The source was quoted saying “at present, rest assured they will certainly not let it break 7… Breaking 7 is beneficial to China because it can reduce some of the effects of tariff increases, but the impact on our renminbi confidence is negative and funds will flow out.”
We remain doubtful on whether China will intervene this time given that they’re been generally refrained in both currency and stock markets in the past few months. Barring any government intervention, we maintain the view that, based on current momentum, USD/CNH should surge bass 6.9800 and 7.000 handle with relative ease. Next target is 61.8% projection of 6.2354 to 6.9800 from 6.6699 at 7.1306.