CNH Outperforms On Liquidity Squeeze

USD/CNH maintained a downside bias post the Asia close on Wednesday. We saw a brief spike higher on the US CPI print, but the move back above 7.2900 was sold by the market. We ended the NY session at 7.2720, a CNH gain of 0.40%. USD/CNY closed at similar levels. The CNY NEER (J.P. Morgan Index) rose a further 0.22% to 122.80.

• For USD/CNH the 20-day EMA sits just above 7.2900, while the 50-day is just under 7.2500. Earlier September lows were at 7.2392.
• The focus remains on the on-going liquidity squeeze. T/N points got as high as +6 yesterday. The 1 week implied yield on CNH got to +6%, but sits back near 5.35% now, the 1 month is back under 5.0%, but still close to recent highs. It was a similar story across CNH Hibor deposit rates, the 3 month surging to 4.22%, fresh highs back to 2018.
• Bloomberg notes that state banks were not supplying CNH liquidity via swaps in yesterday's morning Asia session. Yesterday's announcement of 15bn yuan in offshore issuance for later this month also weighed on liquidity sentiment.
• The data calendar remains empty until tomorrow's activity prints for August and the 1yr MLF outcome.
• In the equity space, the Golden Dragon Index lost 0.64% in Wednesday US trade. To recap, the CSI 300 also lost 0.64% in onshore markets on Wednesday.