Another Weaker Than Forecast PBOC Fix, But Activity Data Beat Forecasts

Upbeat activity data for the first two months of the year have helped mitigate the adverse impact of weak bias in PBOC yuan fixing on the redback's strength. Offshore yuan has now pulled back from worst levels after spot USD/CNH briefly showed above the CNH6.4000 mark for the first time since November 11.

• The PBOC retained weak bias while setting the yuan reference rate, with the central USD/CNY mid-point fixed 129 pips above average sell-side estimate. The weaker-than-expected (from the yuan perspective) fixing comes in the wake of yesterday's 150-pip miss, reinforcing the impression that China's central bank would be comfortable with a weaker yuan. Spot USD/CNH caught a bid after the fixing, topping out within touching distance from its 200-DMA (last CNH6.4116).
• The rate pulled back towards neutral levels as monthly economic activity indicators smashed forecasts. Only the unemployment rate provided some disappointment by unexpectedly rising to 5.5% in February. Although the data were generally stronger than expected, it is worth noting that thy may have been distorted by Lunar New Year holidays, while subsequent weeks brought the deterioration of Covid-19 situation in China and escalation in global geopolitical tensions surrounding Russia.
• Spot USD/CNH last trades +31 pips at CNH6.3981. Bulls would be pleased by a rally above the 200-DMA at CNH6.4116, which would clear the way to the CNH6.4500 mark. Bears initially look for a pullback under Jan 31 high of CNH6.3864.