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USD/CNH Back Sub 7.2700 On Positive Yen Spillover

CNH

CNH outperformed through Wednesday trade, rising 0.31% against the USD. USD/CNH got to lows of 7.2619 during US trade, which also coincided with a slump in USD/JPY. We track slightly higher in early Thursday dealings (last near 7.2665). The yuan enjoying positive spill over from the surging yen, as global equities faltered sharply in the tech space. Onshore USD/CNY spot finished up at 7.2635.

  • For USD/CNH we sit sub both the 20 (7.2825) and 50-day (7.2738) EMAs, while the 100-day is further south around 7.2585.
  • Previous dips in USD/CNH sub the 50-day EMA didn't prove sustainable in earlier July episodes.
  • CNH's near term fortunes may largely rest with how USD/JPY trends unfold. CNH's correlation has remained fairly consistent in the 50-60% range over the past 6-12 months.
  • We may have also seen some unwinding of short CNH positions related to carry trades, given the general PBoC easing bias over the past 12 months has likely made the yuan an attractive funder.
  • Local equities remain under pressure, with the CSI 300 down a further 0.63% yesterday. This capped off the worst 3-day run for the index since January (per BBG), but given the extent of US equity weakness, led by the tech slide, through Wednesday trade, the China to global equity ratio has stabilized somewhat.
  • In the yield space, it remained a familiar story yesterday, with the 2yr down a a further basis point, the 10yr was relatively steady. The data calendar remains empty until Saturday's industrial profits release.

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