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CNH Underperforms as Markets Ponder PBoC After Soft CPI

CHINA
  • CNHJPY sits lower today by just over 0.8%, with CNH fading against all other G10 currencies Thursday. Moves follow the much lower-than-expected February CPI release (1.0% vs. Exp. 1.9%) overnight, reinforcing the importance of PBoC policy for H1. Chinese authorities are now having to navigate pressures of the full re-opening from COVID lockdowns on one side, as well as a lower central growth target and a waning domestic property sector on the other.
  • CNHJPY sits between the 100- and 200-dmas which could provide near-term support/resistance at 19.5123 and 19.8570 respectively, but more broadly the cross remains well above the multi-year uptrendline drawn off the July 2020 low - a trendline that successfully supported prices across the January pullback.
  • Further pricing of easier PBOC policy (or a hawkish BoJ outturn) could see this support being tested over the medium-term, prompting markets to further retrace the near 15% rally off the COVID lows.
  • MNI interviewed former US Treasury economist Setser overnight, who flagged the risks of further state-driven CNY weakness to boost exports and counter risks from slow consumption and real estate markets, highlighting 'off-balance sheet methods' as a likely course of action.

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