USD/CNH Can't Test Sub 7.2000, Modest Equity Rise

USD/CNH sits near 7.2070 in recent dealings, not too far from session lows (7.2040). An uptick above 7.2100 earlier, as the early equity bounce faded, found selling interest. We remain within recent ranges for February to date. Onshore spot has had a relatively muted start, last near 7.1960, little changed for the session so far.

• Equities have stayed positive, albeit away from earlier highs. Some drag is potentially evident from weaker HK stock trends. Note as well that northbound stock flows are negative at -3.14bn yuan at this stage. The trend in the lead up to LNY had generally been positive flows.
• We might have expected a stronger performance given holiday spending and travel was buoyant. China Premier Li Qiang also urged yesterday for forceful action at boost economic confidence at a State Council meeting (per onshore media reports).
• The market may also be waiting to see what comes of this from a stimulus standpoint. Note tomorrow the 1yr and 5yr LPR decisions are due, with the 5yr rate expected to be cut by 10bps (to 4.20%).
• The yuan is higher in trade weighted or CFET basket terms, as the USD index is firmer relative to prior to the LNY break, but we have had largely steady yuan trends against the USD over this period.