Firmer Amid Fixing, Liquidity Support, But Policy Divergences Still Point To Yuan Risks

USD/CNH sits a touch above session lows, last near 7.2530. Earlier lows were at 7.2516. Earlier highs around 7.2640/45 remain intact. The very strong CNY fixing bias, which saw a record -1597pip fixing error set the earlier tone for CNH.

• The fixing bias indicates a desire for yuan stability. We also saw headlines cross from Bloomberg of state banks selling USD/CNY at the 7.2350 level. Spot has edged higher to 7.2360, but remains sub the daily trading band limit (2% above the fixing level) of 7.2387.
• CNH T/N is also tracking higher, last at +7.5, which is still sub late March highs but a further support point for the CNH.
• Broader macro developments still point to upside USD/CNH risks, particularly given the push out for timing of Fed rate cuts.
• Earlier we had weaker than expected China CPI data, at +0.1% y/y, versus 0.4% forecast. The PPI was in line at -2.8% y/y. Core CPI eased back to 0.6% y/y, just a touch above recent lows.
• China bond yields are down slightly at the front end, while 2yr NDIRS remains wedged under 2.0%. Whilst sell-side names have revised higher China growth projections recently, this may not be enough of an offset given the wide policy differentials with the US.