The dollar is keeping losses in check today but so far this week, we’re seeing a bit of a breather in markets and that includes China. While there are fears of broader lockdowns, there are some positive developments with the COVID-19 situation improving in Shanghai at least.
Nonetheless, one can still expect Chinese authorities to stick with easing measures to try and bolster the economy. It is already a rather challenging environment for the country as credit data has been a bit sluggish, strengthening the case for more modest measures to follow in the weeks/months ahead.
The yuan has been a key focus point as of late as Beijing has “allowed” the currency to weaken considerably:
USD/CNY has surged to 6.80 but is stalling there for the time being. Is that a sign of the currency starting to settle in? Perhaps but given that this is arguably just a pit stop for the greenback, I wouldn’t rule out a potential jump towards 7.00 especially since Chinese authorities have kept rather mum about the whole situation.
The next key policy step to watch for China will be the LPR decision this Friday. The last cut was done in January and there are some quarters in the market expecting the next one to take place soon.
That said, China did play around with its policy settings over the weekend by reducing the mortgage rate floor over the past weekend. That might be reason enough not to tweak things too much for the time being.
