As the U.S. Federal Reserve signaled a 50 bps rate cut going ahead, the U.S. yields moved lower pushing the 2-year yield spread (U.S. -China) lower. The USD/CNH has responded to the decline in the yield spread by sharply moving lower last week from 6.94 to 6.83 area.
Our calculations suggest that the exchange rate might decline further, however, we do not anticipate the exchange rate to move below 6.66 area in the short-to-medium term.
We would recommend buying at dips, especially around 6.8 and 6.75 area, with a target of 7.05 are and stop loss around 6.66 area.
We expect the ongoing trade dispute between the United States and China to weigh negatively on yuan.
