Bounce From Monday’s Base Extends, But Bulls Fail To Challenge 7.30 as Of Yet

The bounce in the USD has extended on Tuesday, allowing USD/CNH to tick away from Monday’s multi-week lows.

• USD/CNH traded as high as 7.2934, before settling around 7.2875 as of typing.
• USD/CNH bears failed to breach the October lows during Monday’s pre-NY move lower, which leaves a well-defined technical picture intact for the pair.
• Consolidation ahead of ’23 highs has been evident in recent weeks as the Chinese authorities continue to lean against run away yuan weakness.
• CNH TN points briefly moved into positive territory in Beijing hours, but still remain comfortably shy of multi-month highs.
• Note that the IMF released its updated Chinese GDP forecasts around the time of the close of mainland equity markets, providing upward revisions on the back of Q3 data and policy support.
• Elsewhere, the Fund warned of the need to address LGFV debt issues, as well as highlighting the need for continued property-related policy adjustments.
• The IMF believes that the yuan will remain under pressure owing to US/China interest rate differentials. It also flagged the need for looser monetary policy in China.
• Flow-wise, offshore investors reverted to net selling of mainland equities via the HK-China Stock Connect links, breaking a run of three straight days of net purchases via those channels (which was the longest run of daily net purchases seen since late July/early August). They sold a net CNY4.6bn on Tuesday. This would have provided an incremental negative for the yuan in the background.