Yuan will likely remain weak in the near term – Commerzbank

China’s consumer prices remained in deflationary territory. Economists at Commerzbank analyze Yuan’s outlook after China’s Consumer Price Index (CPI) report.

Subdued prices give room for rate cut next week

Prices continued falling in China. Subdued consumer prices reflect weak demand following the short-lived post-Covid rebound in Q1 last year.

Subdued prices provide room for the PBoC to cut interest rates to support growth. The US Fed’s pivot has allowed the PBoC to focus more on growth as the China-US interest rate differentials will likely turn narrower this year. The market now expects the PBoC to cut its 1-year Medium-Term Lending Facility (MLF) rate by 10 bps to 2.4%. 

The Yuan will likely remain weak in the near term, with USD/CNY trading in the 7.10-7.20 range.