HSBC highlight two continuing headwinds that’ll drive the Chinese yuan even lower

HSBC say that CNY could face more headwinds from

• China’s persistent run of weak data
• and further widened yield disadvantage

And that People’s Bank of China efforts to prop up the yuan are half-hearted:

• The PBoC may continue to smooth volatility, but we do not expect it to draw a firm line in the sand when the tide keeps coming in.

Also on the PBOC, the path is clear for rate cuts next Monday:

• The PBoC unexpectedly lowered the rate on its one-year loans, or medium-term lending facility (MLF), by 15 bps to 2.5%, together with a reduction of 10 bps in its 7-day reverse repurchase rate (a short-term policy rate) to 1.8%.
• The rate cut opens room for a reduction in 1-year or even 5-year loan prime rates on 21 August.

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ICYMI on the MLF cut:

• ForexLive Asia-Pacific FX news wrap: China cuts rates, data disappoint, yuan intervention

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For today, still to come:

• PBOC is expected to set the USD/CNY reference rate at 7.3047 – Reuters estimate

Offshore yuan update:

This article was written by Eamonn Sheridan at www.forexlive.com. Source