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Medium-dated analysis


BLOCK, 10Y Sale


USDCAD test session low

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Concerns around the latest wave of coronavirus globally spurred risk off trade which saw USD/CNH ride to highs of 6.4978, the highest since July 9 when the pair ran into offers around 6.50 – the pair hasn't been above 6.50 since mid-April.

  • Market focus today will be on the LPR rate announcement, no change is expected in the rates, though the announcement will be closely watched after some recent dovish moves by the PBOC. (1-Year: 3.85%, 5-Year 4.65%). The RRR cut and subsequent rolling over of CNY 100bn MLF funds has already seen bond yields decline which could negate the need for an official rate cut. Additionally, the data dump last week showed that while activity did slow the economic recovery remains robust.
  • A piece in the China Securities Journal today expects the rates to be unchanged, citing a survey of market participants. The piece adds that another RRR cut is more likely if liquidity is the issue to be addressed, and that an LPR cut wouldn't necessarily mean a policy shift.