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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
CNH
The break above 7.00 in USD/CNH looks to have further to run (last at 7.0140/45). The correlation between USD/CNH and the US-CH 2yr government bond spread has continued to trend higher through 2022, see the chart below. Note the July 24 2020 high comes in at 7.0302. Today's focus will be on the activity data for August, while the CNY fixing will also be important for intra-day moves.
- Yield differentials continue to trend in the USD's favor, +183bps for the 2yr spread, underscoring the divergent policy trends. While US markets continue to price in a 'higher for longer' US outlook, speculation has risen around further lending rate cuts for China after yesterday's deposit rate cut by a number of large banks.
- Such a move underscores the need for further stimulus in China.
- An upside surprise from today's retail spending data, could be discounted by the market, given on-going Covid restrictions and downbeat spending during the recent holiday period. Power supply issues and well-documented property headwinds could weigh on other activity releases (IP and FAI).
- The other focus point will be the CNY fixing. In this run higher in USD/CNH, the fixing hasn't been above 6.9200 so far (high of 6.9160).
Fig 1: USD/CNH & US-CH 2yr Bond Yield Spread Correlation (Rolling 3 month)
Source: MNI - Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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