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USD Remains Moderate-to-Soft While CNY Struggles

Contributed by Jeff Cheah, Strategic Sales Manager



Fed Hikes 25bp as Expected | skip to SGD/CNY


Last week, we saw the Fed hiking interest rates by 25bp as expected, raising the policy rate target range to 5.25-5.5%. We believe that the focus of policy is still to fight inflation, and policy interest rates need to remain restrictive. The Federal Reserve assesses that inflation is still high, employment is growing steadily, and the banking system is sound and resilient, which therefore places the current policy's focus on fighting inflation.

The Fed is likely to be more patient in the final stage of raising interest rates. Considering that the current interest rate has risen to a restrictive level and US household and credit conditions have tightened, Powell emphasized that whether to raise interest rates in September depends on subsequent data performance.

It is clear that there is a high probability that interest rates will not be cut in 2023, but the path of interest rate cuts in and after 2024 is uncertain. Powell pointed out that achieving the 2% inflation target may have to wait until 2025, but if inflation falls quickly, interest rates can be cut before falling back to 2%, and many FOMC members hope to cut interest rates multiple times in 2024.

While CPI has eased to 3% in June from a high of 9.1% last year, policymakers have expressed concern about core inflation excluding food and energy, which has been falling more slowly. The Fed singled out service sector inflation, which it believes remains high due to a tight labor market.

Another argument in favor of a rate hike this time is the relatively strong economy. Powell remains confident the Fed can reduce inflation without causing a sharp economic downturn. Powell said that Fed staff are no longer predicting that the United States will fall into recession, and there is an opportunity to bring inflation back to the target level without causing massive unemployment. "Staff now forecast a marked slowdown in growth beginning later in the year, but given the recent resilience of the economy, they no longer forecast a recession."

We expect the soft-to-moderate USD profile to play out eventually, as the Fed is near the end of the tightening cycle. Looking beyond, the upside bias for USD is likely to be limited, given that the Fed and markets are looking for rate cuts into 2024 and 2025.

Boosting China’s Electric Vehicles Consumption

The National Development and Reform Commission (NDRC), the Ministry of Industry and Information Technology, and the Ministry of Public Security and other 13 departments recently issued "Several Measures on Promoting Automobile Consumption" to further stabilize and expand automobile consumption, optimize the market environment for automobile purchase and use, and make greater efforts to promote the sustainable and healthy development of new energy vehicles.[1]

Notably, some highlights include:

  1. increasing credit support for automobile consumption and encouraging financial institutions to reasonably determine the down payment ratio, loan interest rate, and repayment period on the premise of compliance with laws and regulations within controllable risks.

  2. continuing to deepen the comprehensive reform of auto insurance, improve the formation mechanism of commercial auto insurance rates, and support insurance companies in developing innovative products such as new energy vehicle charging pile insurance.

  3. encouraging those rural passenger vehicles, cargo vehicles and postal vehicles to upgrade to new energy vehicles, so that the proportion of new energy vehicle procurement increases y/y.

  4. supporting government offices, public transport operators, rental operators, postal services operators, and sanitation services operators to purchase electric vehicles when they change/upgrade.

  5. further accelerating the expansion and quality improvement of the distribution network, improving the stability of rural household voltage, and ensuring safe and stable charging of electric vehicles in rural areas.

  6. accelerating the construction of charging infrastructure in townships, counties, expressways, and residential areas, guiding users to participate in orderly charging and vehicle-network interaction, and encouraging pilot demonstrations of interactive applications between new energy vehicles and power grids.

  7. promoting the formulation of relevant standards for battery replacement infrastructure to enhance compatibility and versatility.

  8. encouraging qualified cities and highways to accelerate the construction of battery-swapping stations.



To take stock, in June 2023[1], sales of new energy vehicles amounted to 806,000, according to the number of wholesales issued by the China Association of Automobile Manufacturers, y/y increase of 35.2%. From January to June, the cumulative sales volume was 3.747 million vehicles, a y/y increase of 44.1%, and the annual market penetration rate was 28.3%.



From January to June 2023, the power battery installed capacity amounted to 152.1GWh, a y/y increase of 38.1%. Among them, the installed capacity of ternary batteries is 48.0GWh, accounting for 31.5% while the total installed capacity of lithium iron phosphate batteries is 103.9GWh, accounting for 68.3%.



As of the end of June 2023, the China’s electric vehicle Charging Alliance has reported a total of 6.652 million charging piles nationwide, including 2.149 million public charging piles and 4.503 million charging piles equipped with vehicles. A total of 2,266 power stations have been built, of which 296 have been built in Beijing, accounting for 13.1% of the country's total, ranking first in the country.

The above statistics reflect a buoyant picture of China’s electric vehicle sector. The world’s second-largest economy is indeed banking on its electric vehicle market to boost more economic activity than they expect. We opine that the new measures show that the Chinese government is not taking this lightly. At this juncture, we see the support of SGD/CNY at 5.3525. Any strengthening of CNY is likely to be driven by green shoots in China’s macroeconomic data. Sources: [1] gov.cn

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