USD/CNY likely to range-trade between 6.80-6.95 until further progress on U.S.-China trade negotiations, says Scotiabank

The USD/CNY currency pair is expected to trade in a range of 6.80-6.95 until the world’s two largest economies make a meaningful progress in the renewed trade negotiations, according to the latest research report from Scotiabank.

China’s PPI inflation eased to zero in June from 0.6 percent the previous month, casting a shadow on the economy and providing the PBoC with added incentive to ease its monetary policy amid the Fed’s dovish stance.

China’s official manufacturing PMI will likely stay soft as the nation’s factory gate inflation is expected to fall into deflationary territory in the months ahead on the back of the base effect. Fed Chairman Jerome Powell signaled the first US interest rate cut at the July 30-31 FOMC meeting amid looming economic risks, when testifying before Congress on Wednesday and Thursday.

In addition, the minutes of the June 18-19 FOMC meeting have raised market expectations of future rate cuts, as "several participants noted that a near-term cut in the target range for the federal funds rate could help cushion the effects of possible future adverse shocks to the economy and, hence, was appropriate policy from a risk management perspective," the report added.

US CPI inflation cooled to 1.6 percent y/y in June from 1.8 percent y/y in May, although core CPI inflation increased.

Meanwhile, Chinese Ministry of Commerce spokesman Gao Feng said at the regular press conference on Thursday afternoon that the trade teams "will restart trade negotiations on a basis of equality and mutual respect, following the consensus agreed by their two state leaders in Osaka." He added that China has been consistent its core concerns need to be addressed.

"We keep a close eye on onshore liquidity conditions. Regarding hovering US-China trade disputes, we reckon the two nations will face a long road before they can reach a deal," Scotiabank further commented in the report.