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The yuan exchange rate is expected to stabilise in the coming sessions with the fixing-spot gap and onshore-offshore spot spread to narrow. The USD/CNH is likely to trade in the range of 6.70-6.90 afterwards.
The USD/CNY closed well below the fixing on Wednesday for a third consecutive session, while USD/CNH tumbled further amid surging CNH funding costs across the tenors. Overnight CNH HIBOR soared 15.73 percentage points to 21.08 percent yesterday from 5.35 percent on Monday, the highest level since January 6.
Over the remainder of the year, China is expected to manage to avert any intense market worries over the yuan depreciation before the 19th Party Congress in the autumn, avoid engineering the yuan weaker and refrain from competitive currency devaluation and preventing the yuan from appreciating excessively to drag down the nation's economic growth.
"We think a counter-cyclical factor (CCF) has been introduced to the pricing mechanism of USD/CNY fixing by the central bank. We expect USD/CNH to trade in the range of 6.70-6.90 afterwards," Scotiabank commented in its latest research report.
