Offshore Chinese Yuan’s decline resumes today with USD/CNH hitting as high as 6.637 so far. Earlier this week, PBoC announced to cut the foreign exchange reserve ratio by 100bps from 9% to 8%. That was aimed providing liquidity to stabilize exchange rate. But so far the impact was very brief.
Capital was seen flowing out of China in accelerated manner since march, due to divergence in policies with other major central bank. Russia invasion of Ukraine, and the risk of tough spread of tough Shanghai like lockdowns added additional uncertainty.
Nevertheless, technically, USD/CNH is now at an important resistance of 38.2% retracement of 7.1961 (2020 high) to 6.3057 (2022 low) at 6.6458. Strong resistance could be seen at the current level to cap upside. Break of 6.544 support would indicate short term topping. However, sustained break of 6.6458 would be a significant development, which could push USD/CNH further to 61.8% retracement at 6.8560.
