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Weaker China growth and policy easing expectations tilt yuan lower
USD/CNY was around 6.77 after Q2 GDP missed the 4.5% to 5.0% growth target range, while authorities are expected to cap volatility via the daily fixing mechanism.
Commerzbank FX research flags a mild depreciation bias for the Chinese yuan, citing weaker Chinese growth and expectations for additional policy easing. The note said USD/CNY was trading around 6.77, slightly lower on the day, while offshore USD/CNH was little changed at 6.77.
The outlook is linked to China’s growth performance, with Q2 GDP at 4.3% year on year, below the official 4.5% to 5.0% target range. FXStreet, summarizing Commerzbank’s view, said Premier Li Qiang chaired a State Council executive meeting that called for fiscal funds to be deployed with maximum efficiency and for policy implementation to accelerate through the rest of the year.
Commerzbank also pointed to the State Council readout as a potential signal ahead of the July Politburo meeting, expected in the final week of July, which is viewed as setting the macro stance for the second half of the year. It added that local governments are nearing completion of their debt swapping programme, at about 94% of a CNY 6 trillion allowance, and are expected to deploy more growth-supporting investment in H2.
On FX mechanics, Commerzbank said the PBoC is expected to limit excessive yuan volatility through its daily fixing mechanism, even as the growth shortfall and policy easing prospects support a softer bias.