BUZZ-COMMENT-USD/CNH Catapulted to New High as PBOC Eases Corrective

October 25 (Reuters)USD/CNH hit a new high of 7.3650 after the People’s Bank of China set the yuan’s daily benchmark considerably lower on Tuesday, implying a loosening of the tight leash it had on FX during the Communist Party Congress.

Tuesday’s USD/CNY fix was pegged at 7.1668, significantly higher than Reuters estimate for 7.1348, which factored in aggressive damping as has apparently been used for the past two weeks.

The change follows the end of the congress weekend, which extended President Xi Jinping’s leadership term, but sparked a strong adverse reaction financial markets that fear economic and market reforms will now give way to ideological politics. As Chinese stocks continue to tumble, the onshore CNY broke through the psychological barrier of 7.3000 to hit a 15-year low against the dollar.

On a trade-weighted basis, the renminbi index is set for another decline as the yuan and Chinese stocks are shunned by foreign investorswhile other currencies are hovering or slightly strengthening as risk appetite improves this week for non-China assets.

Further Yuan weakness is ahead, although USD strength wanes towards year-end as traders look again attenuated falcon by the US Federal Reserve.

USD/CNY bulls might not find much opposition now that it looks like the Chinese authorities are returning some control over the yuan to market forces. There is no significant technical resistance until 7.4223, the 61.8% Fibonacci retracement of the 2005-2014 slide.

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(Ewen Chew is a market analyst at Reuters. Opinions expressed are his own.)

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Carol N. Valencia