Modest Downtick For USD/CNH Even As Broader USD Firms, Back Below 200-DMA

The (modest) downtick in USD/CNH stands out today, given the broader uptick in the USD. The rate has showed as low as CNH7.1606, and last trades around CNH7.1660).

• A slightly firmer lean against yuan weakness via the USD/CNY mid-point fix, coupled with RTRS sources flagging state-back bank support for the redback, present the most obvious supportive factors.
• A quick reminder that a prominent Chinese economist recently told our Beijing policy team that “the yuan will experience swings in 2024 as it grapples with several domestic and international factors, such as the ability of China’s support policies to boost sentiment, potential Federal Reserve interest-rate cuts and the performance of the U.S. economy.”
• Modest net inflows (CNY2bn) for mainland stocks via the HK-China Stock Connect schemes were also yuan-positive at the margin, despite the downtick in the CSI 300.
• CNH TN points have tightened back towards 0, which will also be providing some support for the yuan.
• USD/CNH closed above the 200-DMA on Thursday, the first instance of that nature seen since December 12 (although there has been a move back below that marker already today).
• Bulls look for a weekly close above that barometer, but the impending U.S. NFP & ISM services releases will obviously be key.
• Above that mark (and through yesterday’s highs) focus would move to clustered resistance in the form of mid-Dec highs/psychological levels (around CNH7.20).