The USD/CNH pair traded near 7.2820 during Asian hours on Thursday, maintaining its position above 7.2800 despite new actions by Chinese authorities to stabilize the currency. The pair's appreciation is buoyed by the support the US Dollar (USD) receives as traders expect the US Federal Reserve (Fed) to keep its benchmark overnight rate steady within the 4.25%-4.50% range at its upcoming January meeting. This expectation has bolstered the USD, driving the USD/CNH pair to extend its gains for the third successive day.
The USD/CNH pair's current trading level raises the possibility of retesting its six-week low at 7.2522, recorded earlier on January 21. Further support for the pair appears around the psychological level of 7.2000, which could serve as a critical point for traders monitoring potential downturns. However, initial resistance is anticipated around the nine-day Exponential Moving Average (EMA) at 7.3048, followed by the 14-day EMA at 7.3127, presenting potential obstacles for any upward momentum in the short term.
Despite these recent gains, the USD/CNH pair remains below both the nine- and 14-day EMAs, indicating weaker short-term price momentum. Additionally, the pair's position below the 50 mark on the 14-day Relative Strength Index (RSI) confirms a persistent bearish momentum, suggesting that any upward movements may face significant resistance in the coming days.
In China, the Loan Prime Rate (LPR) serves as the benchmark interest rate, influencing rates paid in the market for loans and mortgages as well as the interest paid on savings. The People's Bank of China (PBoC), which is owned by the state of the People's Republic of China (PRC), utilizes a broad set of monetary policy instruments to achieve its objectives. These tools include the seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions, and the Reserve Requirement Ratio (RRR). Changes to the LPR can directly impact the exchange rates of the Chinese Renminbi, thereby affecting international trade and investment dynamics.
The PBoC's actions are part of broader efforts to implement financial reforms aimed at opening and developing China's financial market. By adjusting these monetary policy tools, especially the LPR, China's central bank can exert influence over domestic economic conditions as well as the international perception of its currency.
The interplay between US Federal Reserve policies and China's monetary strategies creates a complex environment for currency exchanges such as the USD/CNH pair. As markets anticipate a stable interest rate from the Fed, this has provided short-term support for the USD, which in turn impacts its trading relationship with the Chinese Renminbi. Meanwhile, Chinese authorities continue to navigate their economic landscape with controlled monetary adjustments.