Chance of USD/CNY firmly staying below 7.00 mark remains low given PBoC’s new fixing and monetary policy tactics, says Commerzbank

Chances of USD/CNY firmly staying below the 7.00 mark still remains low, given the People’s Bank of China (PBoC) new fixing and monetary policy tactics, according to the latest research report from Commerzbank.

This morning, the PBoC surprisingly cut the rates for medium-term lending facility (MLF) by 5bps, the first cut since 2016.

As the MLF is now the base rate for the loan prime rate (LPR), the new loan benchmark rates, today's MLF rate cut looks like a "game changer" from a rates perspective.

However, given the 5bps cut is actually tiny, it might be fair to say the PBoC only fine-tuned its monetary policy stance. According to the report, today's tiny MLF cut seems be more interesting if taking a FX perspective.

Typically, a rate cut will bring depreciation pressure to the currency. That said, today's unexpected rate cut by the PBoC seems to hint that they believe the depreciation pressure on CNY, if there is any, is tolerable or even welcomed by the Chinese policy makers, Commerzbank further noted in the report.