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CORRECTION: Yuan On Back Foot After Weaker PBOC Fix, Monthly Contraction In Home Prices

CNH

PBOC action and the release of Chinese data has coincided with a fresh bout of volatility in spot USD/CNH. The rate first pulled back from its session high of CNH6.3819 after the PBOC boosted its daily liquidity injection to CNY100bn (which meant a net injection of CNY90bn), citing tax and gov't bond issuance payments as reasons for the enlarged injection. A rebound in USD/CNH followed promptly, as China's new home prices declined for the first time in six years. The data came out at the same time when the PBOC left their LPR unchanged for the 18th month, in line with consensus.

  • Elsewhere, China's central bank set their central USD/CNY mid-point at CNY6.4069, 27 pips above sell-side estimate. A slightly weaker than expected fixing may be a sign that that the PBOC are feeling a degree of discomfort about the yuan's sharp appreciation yesterday.
  • On the data front, China's new home prices rose 3.27% Y/Y in September but slipped 0.08% M/M. The monthly decline was the first one since 2015, adding to concerns about the condition of the local housing market. As a reminder, recent GDP data showed that China's systemically significant property sector contracted for the first time since the onset of the pandemic in Q3.
  • Meanwhile, the NDRC said yesterday that they are looking into ways of intervening in the coal market to rein in surging prices. They pledged commitment to a "zero tolerance" policy toward those spreading false information or colluding in the market and anticipated an increase in daily coal output to 12mn tons.
  • USD/CNH trades +68 pips at CNH6.3831 as we type. The rate rejected support from a trendline drawn off its 2018 low yesterday, which gives bulls hope for a stronger rebound. A move through yesterday's high of CNH6.4290 would shift focus to Oct 12 high of CNH6.4644. Meanwhile, the 50-DMA has just crossed below the 100-DMA and bears look for a successful repeat of the attack at the aforementioned trendline support, which kicks in at CNH6.3669. Below there opens up CNH6.3525, which limited losses on May 31.

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