CNH Benefits From Broad USD Weakness, Offsetting Onshore Equity Falls

USD/CNH found support near 7.2800 post the Asia close on Wednesday. Earlier topside moves above 7.3050 ran out of steam, leaving the pair within recent ranges. USD/CNH ended the NY session near 7.2900, a CNH gain of 0.26%, in line with the BBDXY's fall of 0.29% for Wednesday. We currently track slightly lower, last near 7.2850. USD/CNY ended under 7.2800, while the 4:30pm level in Beijing was 7.2923. The CNY NEER (J.P. Morgan index) rose to 121.76, a 0.31% gain.

• The CNH benefited from a broad based pullback in USD sentiment, particularly post the disappointing PMI prints, as US yields fell across the curve. The US-CH 2yr government bond yield spread sits a touch below recent highs, last near+287.5bps.
• This, coupled with the stronger CNY fixing bias, along with the intervention threat (state banks were reportedly selling USD/CNY around 7.2900 yesterday), may keep USD/CNH upside pressures limited in the near term. Note the 20-day EMA comes in close to 7.2600 on the downside.
• Still, the local equity market backdrop is poor, amid continuing Northbound Stock connect outflows. We have had a 13 day run of outflows, totaling near 78bn yuan. The CSI 300 fell 1.64% yesterday, with the index closing sub 3700. Economic headwinds and concern around the property sector appear to be the main bearish factors. This may curb CNH enthusiasm to some extent.
• There were some equity positives during the US session though, with the Golden Dragon index up 1.53%.