7.35 Caps USD/CNY, USD/CNH Eyes ’22 Highs

{CH} CHINA FX: 7.35 Caps USD/CNY, USD/CNH Eyes ’22 Highs

A couple of forays through CNH7.3600 for USD/CNH during the first half of Friday trade.

• The rate has tagged a fresh YtD high of CNH7.3623, last ~CNH7.3580.
• The break of the early November peak leaves bulls focused on the ’22 high (CNH7.3749)
• Elsewhere, USD/CNY has registered another fresh cycle high, peaking just ahead of CNY7.35, ~CNY7.3460 last.
• While most USD/Asia FX pairs were lower, a weaker mid-point fix (albeit with a still strong bias towards yuan strength) along with another round of outflows for mainland Chinese equities led the yuan lower.
• A front-page commentary in the Securities Times warned that the yuan may not see a major rebound vs. the USD in the short term, cautioning that it could even experience “intermittent depreciation” as the dollar index is likely to stay strong.
• Meanwhile, our policy team interviewed a Chinese policy advisor who noted that the country will pursue steady internationalisation of the yuan due to concerns over FX stability and the limited value in holding trading partner currencies should expansion occur too rapidly.
• Chinese inflation data will cross over the weekend, with CPI expected to exit a deflationary state and the degree of PPI deflation expected to ease again.
• Elsewhere, monthly credit and economic activity data will hit over the next week or so.