USD/CNY: Forex RRR cut unlikely to stem the yuan's weakening trend – ING

The People's Bank of China cut the required reserve ratio of foreign currency deposits that banks need to keep at the central bank. Nonetheless, the yuan is set to keep weakening, economists at ING report.

Cutting FX RRR won't strengthen yuan

“The PBoC cut the forex RRR again this year – this time to 6% from 8% effective 15 September 2022. We believe that this RRR cut will not change the yuan weakening trend. This is because this round of yuan weakness comes from a strong US dollar and the expectation of more Federal Reserve hikes at the coming meetings.” 

“Our USD/CNY forecast is 7.05 by the end of 3Q22.”

“Less aggressive rate hike talk in the market nearer the end of the year might help the yuan to strengthen slightly. As such, we expect USD/CNY to fall to 6.85 by the end of the year.”