USD/CNH declines as the U.S. currency weakens in a big move

China's currency fell to its lowest level since July on Monday, as Beijing stepped up its easing efforts in response to an economic crisis and the revival of COVID-19, which has resulted in economic debilitating lockdowns. On Tuesday, however, the bears are challenging the bulls across all US dollar pairs, and CNH is making a comeback.

At the time of writing, USD/CNH is trading at 6.8650, unchanged from the previous session but declining from its highs. The price has decreased from an all-time high of 6.8743 to a current low of 6.8625. Meanwhile, opinions are spreading that additional cuts are forthcoming. Following a monthly meeting, the PBOC reduced the prime rate on one-year loans by 5 basis points to 3.65% from 3.7%, and reduced the rate on five-year loans by 15 basis points to 4.3% from 4.45%, so cutting the cost of existing loan payments. However, the news that policymakers have reduced lending rates was viewed as a slight gain given to the economy's deteriorating state.

"We also do not anticipate that any of these cuts will have any effect on the economy, with GDP growth continuing on course to fall below the official "about 5.5 percent" objective. To reverse the current pressures on the housing market, analysts at TD Securities stated, considerably more substantial policy intervention will be necessary.

The Securities Times of China announced today that China may lower RRR this year to compensate for MLF maturity. The paper claims that RRR reductions may reduce prime lending rates. Notably, this is a government-run organization reporting such ideas. Increasing policy divergence between the United States and China, together with concerns over weakening economic fundamentals, heightened the risks of capital outflows, which might continue to weigh on the yuan and provide support for the dollar in light of such statements from the state-run news agency.