Front-end CNY ND IRS likely to slide further amid rising hopes for PBoC’s additional monetary easing, says Scotiabank

Front-end CNY ND IRS is expected to slide further amid rising hopes for the People’s Bank of China (PBoC) additional monetary easing, according to the latest research report from Scotiabank.

In response to October’s gloomy macroeconomic data released by the NBS on November 14, the PBoC is expected to roll out more monetary easing measures to boost China’s subdued credit supply and revive economic growth, while avoiding flooding the market with excessive liquidity.

On the FX side, USD/CNY fixing has been set largely in line with market expectations by the PBoC since 14 October, indicating there is neither deprecation nor appreciation pressure on the yuan right now.

"We maintain our shore USD/CNH position, while keeping a close eye on developments in the US-China trade negotiations," the report added.

CNBC reported late Monday that "The mood in Beijing about a trade deal is pessimistic due to President Donald Trump’s reluctance to roll back tariffs, which China believed the US had agreed to," citing a government source.

According to the CNBC report, the Chinese are looking carefully at the political situation in the US including the impeachment hearings and the presidential election. In our view, reaching and signing a phase-1 trade deal is still in the interest of both the US and China.

In the meanwhile, improving Eurozone macroeconomic data and the Fed’s dovish stance will likely keep weighing on the dollar. Fed Chairman Jerome Powell met with US President Donald Trump on Monday at the White House for only the second time since he took over as US central bank chief.

Meanwhile, Trump quickly tweeted a positive readout of the discussion, saying the talk focused on the economy, growth, employment and inflation, including negative interest rate and the dollar strength, Scotiabank further noted in the report.