Continuing To Coil

USD/CNH continues to coil in the relatively narrow band witnessed since before the Golden Week holiday, albeit showing above Friday’s high early this week.

• It seems that outflows from mainland equities via the HK-China Stock Connect schemes more than countered the modest downtick seen in the broader USD when it came to USD/CNH impact.
• Cross-market risk-negative flows have also weighed on the yuan in more recent trade.
• That leaves USD/CNH dealing around CNH7.3175, with well-defined medium-term technical parameters on both sides remaining untouched for some time.
• The PBoC continues to lean against yuan weakness via the daily mid-point fixing.
• A multi-year high net MLF injection was seen earlier, with the PBoC seemingly having one eye on the need to provide liquidity around government bond issuance and the other on the well-documented economic headwinds that China is facing.
• On that front, there is a growing consensus that the Chinese economy has bottomed out in sequential terms, although well-documented issues remain evident. Worry surrounding the property sector still presents the most frequently cited economic issue/risk.
• As such, most still expect further monetary easing, with a front-page report in the Securities Daily pointing to the likelihood of further interest rate and RRR cuts from the PBoC before year end.
• This came after PBoC Governor Pan once again pledged more substantial support for the economy, alongside a flagging of the recent improvement in Chinese data.