CNH Lags USD Sell-Off Amid Looser Liquidity, Blinken's China Trip In Focus

USD/CNH got to highs of 7.2666 post the Asia close on Tuesday, as liquidity loosened somewhat during the session. We track near 7.2600 in early Wednesday dealings, slightly lower, as broader USD sentiment weakened post weaker than forecast PMI prints. Still CNH underperformed the 0.37% fall in the BBDXY. Onshore USD/CNY spot finished up near 7.2450, close to recent highs.

• CNH Hibor deposit rates in Hong Kong moved off recent highs, the 1 month back to 4.58%, against recent highs +5%. The CNH implied 1-week forward yield was also down sharply, back to 3.47%, against recent highs around 5.45%. The 1 month is back to near 4%, off around 1ppt.
• Looser liquidity conditions weighed on CNH, while also widening the CNH-CNY basis a touch, we are roughly back out to +150pips.
• US-CH yield differentials sit a touch off recent highs, although CNH didn't weaken much in response to the recent leg up, so it may underperformer any broader/continued USD sell-off owing to lower yields.
• Elsewhere, the PBoC stated the country's long term government bond yields will be kept in a reasonable range, which matches growth expectations (per the PBoC's Financial News onshore).
• US Secretary Of State Blinken's trip to China will be the other focus point, particularly amid reports yesterday that the US is considering sanctioning some China bank for reported commercial support of Russia's war effort (per the WSJ).
• Overcapacity in the industrial sector could also feature, with China pushing back on recent US claims (see this BBG link).