CNH
USD/CNH is drifting higher, the pair now back around 7.0640, off nearly 0.20% in CNH terms versus end Thursday levels in NY. Liquidity will be lighter given China markets are still out, but it continues the pattern since the start of Oct in terms of modest upside pressure in the pair. It puts us marginally above the 20-day EMA (7.0570), with the pair having spent very little time above this resistance point since July. The 50-day EMA has a 7.11 handle.
- So far today the tone to Hong Kong and China related equities are higher, with the HSI up over 1.7% at this stage, after a negative start. Broader USD trends after a bit softer, particularly in terms of lower USD/JPY levels. However, these factors aren't aiding CNH much at this stage.
- The 1 month USD/CNH risk reversal has pushed noticeably higher in recent sessions, last near 0.15, fresh highs back to early May of this year. See the chart below, which is overlaid with USD/CNH spot.
- One factor that may be weighing on CNH is concern around the extent to which recent equity gains will be sustained. Several sell-side names (Nomura, J.P. Morgan etc) have expressed such concerns. Other sell-side names are more bullish on further positive momentum.
- The other factor is the proximity to the US election, which will be held on Nov 5, so in just under a month. 1 month implied vol for USD/CNH is above 7.76%, fresh highs back to March 2023.
Fig 1: USD/CNH & 1 month Risk Reversal
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