ATFX foreign exchange market: At 9:15 today, the People's Bank of China issued an announcement to increase the 5-year LPR interest rate from 420% to 395%, a 25 basis point reduction, exceeding market expectations. In recent years, the People's Bank of China has adjusted the LPR interest rate by 10 to 20 basis points, and this 25 basis point adjustment is rare, which means that the policy level has a tendency to "let go" to implement loose monetary policy. Interest rate cuts are conducive to the improvement of market valuations, so the Shanghai Composite Index and the Shenzhen Component Index both closed in the positive today. However, for the offshore renminbi, interest rate cuts will reduce its holding returns, and USDCNH tends to ** (i.e., the US dollar appreciates against the RMB) while the US dollar holding income remains unchanged.
Judging from the trend of USDCNH's five-minute level, after the People's Bank of China's interest rate cut announcement, USDCNH was fast** within 10 minutes, reaching a maximum of 7The intraday high of 2181. From the fifteenth minute, USDCNH started the ** trend and did not find effective support until 12:20. Currently latest**72076, still firmly ranked 72000 above. Why did the announcement of the interest rate cut cause USDCNH to rise first and then fall, and the decline was greater than the increase? We believe there are several reasons for this:
First, due to the existence of a huge surplus, the renminbi has a natural driving force for appreciation. **Surplus, i.e. the total value of exports is greater than the total value of imports, and the exporter receives net dollar income. When exporters convert their US dollars into RMB, it increases the demand side of RMB buying. A steady stream of ** surpluses will form a steady stream of RMB demand, and the value of RMB will naturally be strong.
Second, the Fed is expected to cut interest rates, and the dollar index is expected to depreciate. While the PBOC cut rates by 25 basis points, the Fed is more likely to cut rates. The latest annual rate of CPI growth in the United States is only 31%, which is about to fall below the 3% mark, well below the previous value of 34%, hyperinflation is long gone, and high interest rates are no longer suitable for the current macroeconomy. Based on this, the market expects the Fed to cut interest rates once in the first half of this year, and the dollar index will continue to depreciate due to the rate cut. Due to the high probability of a hard landing in the US macroeconomy, the Fed is likely to cut interest rates more frequently than the PBOC, so the probability of RMB appreciation relative to the US dollar is higher when there are expectations of interest rate cuts in both.
Third, from a technical point of view, USDCNH itself is in a medium-term bearish trend.
From September 8 to October 31 last year, USDCNH formed an ascending triangle consolidation structure; From December 11 last year to February 20 this year, USDCNH formed an ascending wedge consolidation structure. Between the two consolidation structures, there is a one-sided ** trend, which means that the medium and long-term trend of USDCNH is bearish. In a bearish trend, every ** is a starting point. After the announcement of the People's Bank of China's interest rate cut, it will also be hit by bearish trend funds. The fast and slow line of the indicator KD has been dead in the overbought area, and the trend of the market outlook is likely to continue. The bars of the MACD indicator run close to the zero axis, which means that the characteristics of the MACD indicator are greater than the unilateral characteristics, and even if the bears continue, the short-term cumulative drawdown is relatively limited.
ATFX Risk Warning, Disclaimer, Special Statement: The market is risky, and investment should be cautious. The above content is the opinion of the analyst and does not constitute any operational advice. Please do not rely on this report as the sole reference. Analysts' views are subject to change at different times and will be updated without notice.