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USD/CNH Biased Higher By Yield Spreads

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USD/CNH sits slightly down from session highs, last around 6.980. We got to 6.9820 post the weaker than expected CPI/PPI prints. The simple 100-day MA is very close by at 6.9760. Highs in the pair early Wednesday came in around the 6.9975 level. Onshore spot is generally lagging USD/CNH moves, with USD/CNY last sub 6.9700.

  • The chart below overlays USD/CNH against the US-CH 2yr government bond yield spread. The trend is still skewed heavily in the USD's favor.
  • China 2yr yields sit down slightly from recent highs, last near 2.405% and haven't seen much reaction post today's inflation downside surprise. The beta of the spread is likely to be heavily skewed towards US yields/developments in the near term.
  • China asset sentiment in the equity space hasn't been embolden by how the NPC has progressed so far, at least from a growth target standpoint.
  • Note though next Wednesday delivers the Feb round of monthly activity indicators. Positive surprises, which is suggested by the recent PMI outcomes, may encourage renewed optimism around the re-opening theme.
  • This in turn could leave CNH less sensitive to US-CH yield spread developments. Of course, the opposite could apply on any disappointing data outcomes.

Fig 1: USD/CNH Versus US-CH 2yr Government Bond Yield Spread

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USD/CNH sits slightly down from session highs, last around 6.980. We got to 6.9820 post the weaker than expected CPI/PPI prints. The simple 100-day MA is very close by at 6.9760. Highs in the pair early Wednesday came in around the 6.9975 level. Onshore spot is generally lagging USD/CNH moves, with USD/CNY last sub 6.9700.

  • The chart below overlays USD/CNH against the US-CH 2yr government bond yield spread. The trend is still skewed heavily in the USD's favor.
  • China 2yr yields sit down slightly from recent highs, last near 2.405% and haven't seen much reaction post today's inflation downside surprise. The beta of the spread is likely to be heavily skewed towards US yields/developments in the near term.
  • China asset sentiment in the equity space hasn't been embolden by how the NPC has progressed so far, at least from a growth target standpoint.
  • Note though next Wednesday delivers the Feb round of monthly activity indicators. Positive surprises, which is suggested by the recent PMI outcomes, may encourage renewed optimism around the re-opening theme.
  • This in turn could leave CNH less sensitive to US-CH yield spread developments. Of course, the opposite could apply on any disappointing data outcomes.

Fig 1: USD/CNH Versus US-CH 2yr Government Bond Yield Spread

Keep reading...Show less