Chinese Yuan expected to edge lower against US Dollar – UOB

The foreign-currency reserve requirement ratio will rise to 6% from 15 November as the People’s Bank of China (PBoC) seeks to curb Chinese Yuan (CNY) appreciation, according to UOB’s Ho Woei Chen and Peter Chia. With interest rate differentials widening, the analysts remain cautious on CNY over the medium term and anticipate a modest rebound in USD/CNY. Updated UOB forecasts are due on 6 November.

PBoC reserve requirement increase bolsters cautious view on CNY

"In a statement on Tue (3 Nov), the People’s Bank of China (PBOC) said the reserve requirement ratio for foreign currency deposits (FC RRR) will be increased by 2 ppt to 6% from the current 4%, effective from 15 Nov."

"The PBOC uses adjustments to the FC RRR as a primary tool to manage domestic foreign-currency liquidity and stabilise the value of the CNY."

"We have recently shifted to a cautious medium-term outlook on CNY due to the widening interest rate differential with the USD."

"The FC RRR hike further reinforced our view of a modest recovery in USD/CNY from here."

"We will update our USD/CNY forecasts at the upcoming FX & Interest Rate Monthly Report scheduled to be released on 6 Nov."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)