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CNH: USD/CNH Breaks Sub 7.0000 Amid Stimulus Hopes, Profits Out Today

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USD/CNH slumped towards the low 6.9700 region as US Thursday trade unfolded, and we track close to this level in early Thursday trade. CNH gained 0.85% for Thursday's session, outperforming the BBDXY's 0.42% dip (the DXY fell 0.35%). USD/CNY finished up at 7.0111 in onshore trade, meaning we have a significant negative bias in USD/CNY-USD/CNH terms. The CNY CFETS basket tracker rose 0.18% to 98.45, per BBG. 

  • Optimism around economic stimulus surged on Thursday, amid reports of cash injections into state banks, along with $284bn of special bond issuance to aid the economic recovery, particularly in the consumer sector (per RTRS). Pledges also from the Politburo meeting held on Thursday to stop the real estate market declining, will also have drawn market focus.
  • Onshore equities rose over 4% yesterday, while the Golden Dragon index surged nearly 11% in US trade. The China to global equity ratio has surged in the past week, although this trend hasn't led the recent move lower in USD/CNH, see the chart below (note USD/CNH is inverted on the chart).
  • For USD/CNH, early May 2023 highs were at 6.9636, while lows from this period were just under 6.9000 in terms of potential downside targets.
  • The local data calendar contains August industrial profits today (the prior was +4.1%y/y). On Monday we have the PMIs out for September both in terms of the official and Caixin prints. Monday also marks the last session before the National Day holiday period, which runs from Tuesday the 1st of October until the 7th of October. 

Fig 1: USD/CNH (Inverted) Versus China To Global Equity Ratio 

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USD/CNH slumped towards the low 6.9700 region as US Thursday trade unfolded, and we track close to this level in early Thursday trade. CNH gained 0.85% for Thursday's session, outperforming the BBDXY's 0.42% dip (the DXY fell 0.35%). USD/CNY finished up at 7.0111 in onshore trade, meaning we have a significant negative bias in USD/CNY-USD/CNH terms. The CNY CFETS basket tracker rose 0.18% to 98.45, per BBG. 

  • Optimism around economic stimulus surged on Thursday, amid reports of cash injections into state banks, along with $284bn of special bond issuance to aid the economic recovery, particularly in the consumer sector (per RTRS). Pledges also from the Politburo meeting held on Thursday to stop the real estate market declining, will also have drawn market focus.
  • Onshore equities rose over 4% yesterday, while the Golden Dragon index surged nearly 11% in US trade. The China to global equity ratio has surged in the past week, although this trend hasn't led the recent move lower in USD/CNH, see the chart below (note USD/CNH is inverted on the chart).
  • For USD/CNH, early May 2023 highs were at 6.9636, while lows from this period were just under 6.9000 in terms of potential downside targets.
  • The local data calendar contains August industrial profits today (the prior was +4.1%y/y). On Monday we have the PMIs out for September both in terms of the official and Caixin prints. Monday also marks the last session before the National Day holiday period, which runs from Tuesday the 1st of October until the 7th of October. 

Fig 1: USD/CNH (Inverted) Versus China To Global Equity Ratio 

Keep reading...Show less