USD/CNY is likely to trade above the 6.60 support at current stage, says Scotiabank

USD/CNY and USD/CNH rebounded last Friday as the PBoC set its daily reference at 6.6642 that was higher than market expectations and our forecast of 6.6559. The wave of yuan appreciation started from July, days after the first round of US-China Comprehensive Economic Dialogue held in Washington on July 19.

Friday’s higher-than-expected USD/CNY fixing was aimed at guiding and stabilizing market expectations following the yuan’s sharp appreciation. USD/CNY spot closed pretty below the same day’s fixing on Tuesday to Thursday last week. Weak US July CPI inflation released last Friday could weigh on the USD versus its major rivals such as the EUR, which could benefit the CNY, CNH and SGD given their tight correlation with the EUR.

In addition, Bloomberg reported Sunday that US President Donald Trump will sign an executive memorandum on Monday 14 August directing US Trade Representative Robert Lighthizer to consider investigating China over its intellectual property practices. US President Trump said his country is willing to maintain communication and coordination with China on major international and regional issues in a phone conversation with his Chinese counterpart Xi Jinping on Saturday.

"With the CFETS RMB Index climbing to above the 94 mark last Friday, the yuan is expected to consolidate with a strengthening bias ahead of the upcoming major events including the ruling party’s 19th national congress, US Treasury Department’s semiannual FX policy report and US President Trump’s China visit. USD/CNY is likely to trade above the 6.60 support at current stage," Scotiabank commented in its latest research report.

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