Firmer Than Expected Yuan Fixing Counters Shanghai Covid Worry

Spot USD/CNH has wiped out earlier gains as convincing appreciation bias returned to the PBOC fix, with the mid-point of permitted USD/CNY trading band set nearly 50 pips below sell-side estimate.

• This is the eight consecutive day of stronger than forecast yuan fixings, but the deviation from expected levels was somewhat narrower (5 and 12 pips) over the last two days.
• The yuan showed some weakness earlier as Shanghai reported two community cases of Covid-19. This came on the heels of zero such cases yesterday and three days of no community transmission would allow the authorities to ease curbs.
• On top of that, worries about the local property sector resurfaced as major developer Sunac China said id doesn't expect to make payments on its Oct '23 bond and other senior notes. The grace period for delayed coupon payment on that 2023 dollar bond expired Wednesday.
• Meanwhile, China's political leadership maintained their familiar rhetoric re: current economic headwinds, with Premier Li asking officials to use fiscal and monetary policy tools to support the economy.
• Spot USD/CNH trades flat at CNH6.7637 as we type and it is worth noting that it has stuck to a fairly narrow range. Topside focus falls on May 9 high of CNH6.7766, which is followed by Nov 4, 2020 high of CNH6.7745. Bears look for a retreat towards May 4 low of CNH6.6118.