USD/CNH may pressure back the YTD highs at 7.35 – TDS

Chinese banks lowered the 1-year Loan Prime Rate (LPR) by 10 bps and left the 5-year LPR unchanged. Economists at TD Securities analyze USD/CNH outlook after smaller than the 15 bps expectation cut.

China banks disappoint

In an unexpected move, China's 1-year LPR was cut less than expected by 10 bps to 3.45% and the 5-year rate was kept unchanged at 4.20%. 

Overall, the disappointment in the LPR decision adds more confusion for investors, especially after the meeting between PBoC and state banks which pledged for increased loan support. 

Despite a stronger-expected-fixing today (~880 pips), markets may read the LPR decision as a step back in policy support from authorities and may pressure USD/CNH back to YTD highs at 7.35.