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by The offshore yuan has risen past $7.08 (USD/CNH), returning from previous losses. This change came as traders returned from the Mid-Autumn Festival holiday and began to focus on the upcoming decisions by the U.S. Federal Reserve.
These decisions are highly anticipated, with many expecting the beginning of a reduction in U.S. interest rates for the first time since 2020. A significant reduction of 50 basis points is 65% likely.
USDCNH Analysis – 18-September-2024
Domestic and International Monetary Policies
In China, the spotlight is now on the People’s Bank of China (PBoC) as it prepares to update its key lending rates soon, including the 1-year loan prime rate and the 5-year rate, expected this Friday.
Meanwhile, the PBoC has been actively managing the country’s liquidity. On Wednesday, it added CN¥568.2 billion (approximately $80.11 billion) through seven-day reverse repos.
This injection was intended to balance the maturing medium-term lending facility (MLF) loans and reverse repos, ensuring the banking system remains well-funded.
Preparing for Monetary Adjustments
China’s central bank is also setting the stage for future financial strategies. On September 25, it confirmed plans to extend the terms of medium-term lending facility (MLF) loans.
This move delays a broader monetary policy adjustment aimed at making short-term rates more influential in market guidance.
Navigating Through Monetary Changes
As traders and financial institutions adjust to these shifts in monetary policy both domestically and internationally, the impact on markets and the broader economy will be closely watched.
The careful balancing of liquidity by China’s central bank, alongside anticipated rate cuts by the U.S. Federal Reserve, highlights the intricate dance of global finance. Understanding these changes is crucial for anyone engaged in international markets or currency trading.
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