USD/CNH Just Below Recent Highs, 1yr MLF Rate Seen On Hold At 2.75%

USD/CNH finished the NY session fairly close to 6.8400, last tracking close to the 6.8375 region. We got close to 6.8060 post the US CPI print, but like elsewhere, the firmer US yield backdrop saw the pair recover. We remain below Monday's highs of 6.8460/65, while the 50 and 200 day EMAs sit slightly higher (6.8585 and 6.8604 respectively). On the downside the 20-day EMA is drifting higher, last at 6.8027.

• Today the focus will be on the 1yr MLF outcome, with the market consensus looking for no change at 2.75%. A small number of forecasters expect a 10bps drop. For MLF volumes, the consensus sits at 500bn yuan, from 779bn yuan prior.
• Tensions around the balloon issue may have been tempered somewhat, as the US stated the latest objects to be shot down were likely from the private sector and don't have a China link.
• Still, China officials protested the sanctioning of 6 China firms by the US. China President Xi also pledged to deepen trade ties with Iran, which is unlikely to please US officials.
• In the equity space, the China Dragon Index fell -0.55% in US trade, reversing part of Monday's +2.60% gain.