USD/CNH Not Too Far Off 2024 Highs, Focus Remains On Onshore Equity Sentiment

Dips in USD/CNH to 7.2100 were supported late in Asia Pac trade. The pair pushed higher through London/NY trade, getting to 7.2245, before pulling back to 7.2200, which is where we currently track. CNH lost a modest 0.08% for Monday's session, outperforming the BBDXY's +0.40% gain (amid further US yield gains post Powell and better services ISM data).

• USD/CNY also nudged higher but closed under 7.2000 in onshore Monday trade. The CNY NEER (J.P. Morgan Index) rose 0.26% to 124.5, close to fresh highs back to May last year.
• For USD/CNH, we aren't too far away from earlier 2024 highs at 7.2322. A break above that level could see mid Nov highs at 7.2551 targeted, although this would be above yesterday's upper bound for onshore spot of 7.2491 (+2% above the USD/CNY fixing level).
• Hence, we may see more leaning against yuan depreciation pressures, particularly ahead of the LNY holiday period, which kicks off this Friday. Tighter CNH liquidity may be in focus. CNH deposit rates (Hibor) climbed yesterday but CNH implied yields remain off recent highs for now.
• The other focus point will be on local equity markets. Yesterday saw sharp swings. The CSI 300 ultimately finished 0.65% higher, but the Shanghai Composite was down 1.02%.
• There was a lot of focus from the news wires on tightening trading restrictions for domestic investors to support local bourses, see this link for more details.
• Still, there was limited spill over to CNH from equity market gyrations.