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Little Flow Through To The Yuan From Positive Equity Sentiment

CNH

USD/CNH sits just above 7.3100 in recent dealings, showing little follow through on earlier downside momentum. Earlier lows were at 7.3069. This was above yesterday's low near 7.3015. Spot USD/CNY has opened lower, but also remains above Tuesday session lows at this stage, last near 7.3060.

  • Equity market sentiment is quite more positive in early trade, the CSI 300 up over 1%. Hong Kong stocks have also shot higher, the HSI up over 2% at this stage (albeit slightly off earlier highs).
  • This follows the near 4% gain for the Golden Dragon index in US trade on Tuesday. Additional fiscal impetus via increased government bond issuance a positive for market sentiment.
  • The lack of flow through to CNH may reflect the fact that easier monetary policy settings may also be accompanied with great fiscal stimulus. Onshore media highlighting today analysis that shows maturing MLF in the next few months and the potential need to boost liquidity via a RRR cut (see this BBG link).
  • Increased government debt issuance may also increase the need the need for looser liquidity conditions to avoid tighter liquidity elsewhere in the economy.
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