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IV Drops As Yuan Stays In Range

CNH

The PBOC fixed USD/CNY at 6.4978, 1 pip above sell side estimates. USD/CNH is higher, last at 6.5040, having hit resistance at 6.5088, this brings the March 15 high of 6.5168 into focus.

  • There is evidence of simmering tensions between the US and China. An aide to US President Biden said in an interview that the US would not just stand by and watch "economic coercion" of Australia by China. The comments come days after the leaders of Australia, India, Japan and the US promised to uphold regional security. US Secretary of State Blinken has also been critical of China's tactics on Taiwan and Hong Kong.
  • The offshore yuan has seen sluggish price action of late, especially considering its gyrations in 2020. 1-month implied volatility has fallen 4.9025 from March highs of 5.345 and the 2021 high of 5.60. Calls in USD/CNH are still preferred, but 25-day risk reversals have fallen some 25bps from 2021 highs, last at 0.5475.

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