The USD/CNH has risen within a range of 7.2450 to 7.2215. Analysts have noted that the currency pair is moving towards the upper end of this range.
Chinese commercial banks have maintained the 1- and 5-year Loan Prime Rates at 3.10% and 3.60%, respectively. The People’s Bank of China is expected to keep the 1-year MLF rate steady at 2.0% due to reduced net interest margins for banks.
Upward Pressure On USD CNH
The USD/CNH pair has trended towards the upper boundary of its recent range, indicating that upward pressure persists. This movement suggests that market participants are adjusting their positions in response to external influences rather than shifting sentiment towards the yuan itself.
Meanwhile, China’s major banks have opted to keep their Loan Prime Rates unchanged, maintaining short-term borrowing at 3.10% and longer-term loans at 3.60%. The decision to hold these rates steady reflects an ongoing balancing act—supporting economic activity while allowing financial institutions to maintain lending profitability.
We anticipate that the central bank will keep the one-year Medium-term Lending Facility (MLF) rate at its current 2.0%. Given the reduced net interest margins facing banks, a cut at this time would likely strain profitability in the sector. Keeping policy stable helps prevent additional stress on financial institutions while ensuring that liquidity conditions remain supportive.
Impact On Monetary Policy And Trading
For those trading derivatives, these developments mean that expectations for monetary policy adjustments should be tempered. A stable MLF rate indicates the central bank is not inclined towards abrupt easing, which could limit immediate downside movements in the local currency. Furthermore, with the USD/CNH pair gravitating towards the upper boundary of its range, traders should be attentive to whether the exchange rate breaks higher or reverses course.
