USD/CNH Above 7.2100 As Firmer US Yields Offset Continued Equity Gains

USD/CNH drifted higher post the Asia close on Tuesday. We track near Tuesday highs from NY in the first part of Wednesday dealings, last near 7.2140. We couldn't get above 7.2150, but overall ranges were tight, as implied vol continued to weaken as we head into the 'Two Sessions'. USD/CNY finished up at 7.1979 yesterday, still unable to breach the 7.2000 level, while this looks like a short term line in the sand. On a NEER basis (J.P. Morgan index), the yuan edged down slightly to 124.39.

• USD/CNH remains within recent ranges, recent highs at 7.2185 remain intact.
• The trend around US-CH yield differentials still remain skewed higher, although for now CNH is not responding to these moves. We saw the 10yr yield onshore make fresh lows yesterday, but there was no follow through, ending near 2.38%.
• BBG notes that CNH 12 month forward points have fallen in recent weeks in a sign that foreign appetite for onshore bonds may be waning (see this link for more details).
• Equity gains didn't appear to aid CNH sentiment. The Golden Dragon index rose 2.1% in US trade, the 5th straight session of gains. This followed firm gains in onshore markets on Tuesday. To recap, the CSI 300 rose +1.2%, with Northbound stock connect inflows strong. Focus remains on policy efforts to support the equity market rebound.
• The local data calendar remains empty until Friday's official PMIs cross for Feb.