CNH Outperforms Dollar Gains, China Equity Weakness In Focus

USD/CNH tested above 7.2300 (highs around 7.2320/25) post the Asia close on Wednesday. Gains weren't sustained though, with the pair around 7.2240 in early Thursday dealings. This left USD/CNH little changed versus end Tuesday levels. USD/CNY finished up at 7.1963, unable to breach the 7.2000 level. The CNY NEER (J.P. Morgan index) climbed further to 124.10, +0.26%.

• State banks were reportedly USD sellers yesterday, as USD purchasers from clients and bank desks picked up, per BBG reports.
• Equity sentiment was very poor yesterday, the CSI 300 down 2.2%, the HSI off 3.7%. Poorer retail sales and house price data, offsetting better IP and in line Q4 GDP, while lingering disappointment at the lack of lower rates from the MLF earlier in the week continued as well.
• International flows also factored into the move lower in equities, with the mainland experiencing CNY13.1bn of net outflows via the northbound legs of the HK-China Stock Connect schemes, the largest round of daily net sales seen since Oct ’22 (see this link for more details).
• The Golden Dragon index continued to weaken in Wednesday US trade, the index down a further 2.59%. China versus rest of the world equity performance is at fresh cyclical lows.
• This is typically a CNH headwind, although the authorities are guarding against the pace of depreciation, via the CNY fixing mechanism and reported state bank USD sales.