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USD/CNH Drifts Lower, Aided By Tighter Funding Costs, CNY Fixing To Remain In Focus

CNH

The yuan once again defied USD strength. USD/CNH spent most of the post Asia close tracking lower. Earlier highs above 7.2800 came after yesterday's USD/CNY fix was set above 7.1000. USD/CNH got to the low 7.2600 region in US Tuesday trade, leaving the pair only marginally higher for the session (BBDXY gained a further 0.36%).

  • USD/CNY spot finished little changed near 7.2380, after spiking at yesterday's onshore open above 7.2400. State banks reportedly sold USDs to curb the rise (per BBG).
  • The focus will remain on the upside bias to the USD/CNY fixing today. The 4:30pm close for USD/CNY was 7.2396, while boarder USD gains persisted.
  • Tighter CNH liquidity is offsetting higher US yields to a degree. The overnight CNH Hibor rate climbed to 5.54% yesterday. 1 week implied CNH yields are around 5.3%, close to recent highs, while the 1 month pierced 5%, levels not seen since September last year.
  • The local data calendar has second tier data for the rest of this week, with March FDI figures due, along with FX settlement figures. Earlier next week we have the 5yr and 1yr LPRs, but no change is expected.
  • In the equity space, China benchmarks finished lower in Tuesday trade in a volatile session, the CSI 300 off 1.07%,. The regulator stated that tighter delisting rules are aimed at zombie companies not small-caps (which fell sharply yesterday), per BBG.
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