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USD/CNH Back Above 7.2900, Northbound Stock Connect Outflows Continue

CNH

USD/CNH is bucking the softer USD trend elsewhere (BBDXY down 0.10%), with the pair back above 7.2900 this afternoon. Highs for the session sit just under 7.2975. Earlier lows were at 7.2691. Local equities unable to generate positive upside traction into the break has been a factor, after showing positive signs in early trade.

  • The CNH's Hibor rate also shot higher, as the authorities sold CNH bills in Hong Kong to drain liquidity (35bn yuan total). This puts the 1 month Hibor largely in line with the 1 month CNH implied yield (near 5%).
  • The market may be taking a buy on dips mentality for USD/CNH given broader US-China policy and growth differentials currently in play.
  • Northbound outflows via the stock connect continue, with a further -4.3bn yuan so far today. Since late July we have seen -65bn yuan in cumulative outflows.
  • USD/CNH remains comfortably away from Monday session highs around 7.3360.

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