Equity Markets In Focus As Negative Sentiment Bleeds Through To FX

Offshore yuan had its worst day since October on Tuesday, USD/CNH jumping from intraday lows of 6.4775 to highs of 6.5287, the highest level since April and breaking the pair out of narrow range seen since mid-June. The rate last holding most of the gain at 6.5216, down 53 pips on the session.

• The move brings the April high at 6.5876 into focus, a break above here would be the highest for the pair since November. Support is seen at the 200-DMA 6.4992. The jump in USD/CNH has seen 1-month ATM implied volatility jump to the highest since late May at 4.65 after hovering around 4.15 recently, 1-month 25-delta risk reversals also jumped to the highest since March at 0.6575 from around 0.30.
• Sentiment has been negatively impacted by an exodus from Chinese equites (full analysis here) as well as continuing Sino-US tensions with a terse meeting between Chinese representatives and US Deputy Secretary of State Sherman recently. US Defense Secretary Austin gave a speech in Singapore on Tuesday and namechecked China saying the US would challenge Chinese aggression.
• Elsewhere the IMF trimmed its economic growth forecast for China this year to 8.1% from 8.4%, while also adopting a more negative outlook on the Asia region in general. The IMF did upgrade 2022 growth forecasts to 5.7% from 5.6%.