USD/CNH Breaches 7.20, U.S. Data Helps Limit Move

USD/CNH shows as high as CNH7.2189 before trading back to CNH7.2150 last. Our technical analyst notes that the pair broke key short-term/psychological resistance at the Dec 13 high/bull trigger (CNH7.20), which strengthens the bullish outlook. Next resistance is located at the 50.0% retracement of the Sep 8-Dec 29 bear leg (CNH7.2278).

• The broader USD bid covered elsewhere was a driving force (until the recently released U.S. data hit), but there are some China-specific matters at work as well:
• BBG sources indicated that China is considering CNY1tn of new debt issuance via special sovereign bonds. The plan would look to fund projects related to food, energy, supply chains and urbanisation via ultra-long bonds, per the same sources. This is not a new idea, with recent speculation in local media flagging as much.
• Continued focus on potential Q1 rate cuts & a RRR reduction from the PBoC via analyst comments run in tier 1 newspapers.
• A downtick for most property developers in equity trade, with Country Garden’s guidance for ‘24 delivery weighing on that name. Elsewhere, a couple of names in the space struggled as they were not granted access to Ping An’s supportive financing scheme.
• Northbound outflows from the HK-China Stock Connect scheme were a headwind for the yuan (~CNY4.1bn), even as the CSI 300 ticked higher (with the benchmark aided by state support measures covered elsewhere).
• Davos-based comments from Premier Li tried to placate international worry re: China, while he tipped his hat to 5.2% GDP growth for ’23 (that data will cross on Wednesday, along with the monthly run of economic activity prints & quarterly GDP).
• Note that the PBoC continued to deploy a lean against yuan weakness via the daily mid-point fixing.