OCBC strategists Sim Moh Siong and Christopher Wong note that the USD/CNH pair has risen as geopolitical tensions over Iran support the dollar. Beijing instituted a stronger CNY adjustment, which helped stabilize the renminbi and partially offset the broader weakness in Asian currencies. However, continued strength in the USD and weaker risk sentiment may force even stronger corrections to counter near-term depreciation pressures, while highlighting bullish levels.
A pair of guides to geopolitics and recovery strategy
“USD/CNH rose overnight as the geopolitical conflict in Iran showed little signs of de-escalation. This week, the strength pattern saw a slight recovery in the form of a stronger correction in the RMB, with the 30-day moving average price change in USD/CNY increasing to -33 pips (compared to -27 pips a month ago). A continuation of the trend of maintaining a strong correction could ensure relative stability for the RMB (especially (if the expected constant-to-actual adjustment gap does not begin to narrow) deviates from the norm), which should help partially mitigate the weakness in Asian currencies.”
“But if USD strength continues and risk sentiment deteriorates further, then an even stronger CNY correction may be necessary to offset near-term depreciation pressures.”
“USD/CNH last traded at 6.9260. Daily momentum is bullish while RSI is rising. Risks remain skewed to the upside.”
“Resistance at 6.9370 (50 DMA), 6.9520 and 6.9780 (38.2% Fibo retracement from August high to February low). Support at 6.8970 (21 DMA), 6.88 levels.”
(This article was created with the facilitate of an artificial intelligence tool and has been reviewed by an editor.)
