Touches Two-Month High

The yuan gained through the session on Monday, USD/CNH bottoming out at 6.4708, a two month low The 2021 lows are at 6.4009. 1-month USD/CNH implied volatility has fallen for a fourth straight session, down to lowest since January at 3.9275%. The PBOC have refrained from injecting funds since February 25, even as liquidity demands increase heading into a holiday next week. Elsewhere, Chinese local authorities have slowed the pace of debt sales according to Bloomberg, which could indicate a tapering of stimulus. Local governments have sold or plan to sell CNY 222.7bn in Jan to April, down from CNY 1.15tn in the same period in 2020.

• There is, however, growing speculation that tailwinds for the yuan could be dissipating, those who subscribe to the theory cite a slow down in yuan appreciation having gained only 0.5% in 2021 so far, while the yield differential is also narrowing thanks to a robust vaccine rollout in the US.
• There could be some caution around Chinese assets, Fitch downgraded China's Huarong's credit rating to BBB from A, warning of potential further downgrades. Fitch is the first of the big ratings agencies to downgrade the distressed debt manager, and said that there are risks if the Chinese government withholds indications of support.
• Tensions with the US have arisen in an unlikely area, coronavirus support. China has offered to help India deal with its surge in coronavirus cases, and criticized the US for acting too slowly.
• Markets await March industrial profits data, the Y/Y figure printed 20.1% in February. The release is due at 0230BST/0930HKT.