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Bounces With Equities, Steady 1yr LPR Reflects Yield Differentials


USD/CNH has tracked lower as local equity market sentiment has turned around. We were last near 7.1860, slightly above session lows. We are around 0.20% stronger in CNH terms for the session.

  • The pair is now back to early Feb levels and sub all the key EMAs except for the 200-day which sits near the 7.1740 level.
  • The sharp turn in HK equity sentiment has aided onshore markets, with the CSI 300 comfortably up over 1.5%. Property names are outperforming, aiding by funds approved for the sector since the start of the year, while in Hong Kong there is potential scope for removal of some property taxes (see this BBG link).
  • Northbound stock connect flows are just under 9.5bn at this stage.
  • Elsewhere, a PBoC backed newspaper noted the reason for yesterday's steady 1yr LPR outcome was due to the yield gap with the US (see this link).
  • This in turn suggests FX concerns around loosening too much or too rapidly at certain tenors. Hence there may be continued focus on leaning against yuan depreciation pressures.

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