USD/CNH Off Session Lows After Brief Look Below CNH7.26

Firmer than expected monthly economic activity data leant support to the yuan during the early rounds of Asia-Pac trade, before a turn lower in mainland equity benchmarks and some light net outflows via the HK-China Stock Connect helped reverse some of the move lower.

• Continued jitters surrounding property developer credit repayments seemed to more than offset, liquidity developments (RRR cut & MLF net injection) and the firmer than expected data when it came to equity markets.
• CNH forward points have stabilised a little below recent highs, although the squeeze higher in CNH HIBOR continues.
• Elsewhere, state-backed media suggested that the RRR cut would help stabilise the yuan, with a focus on the economic stabilisation aim, as opposed to liquidity impact (which was covered elsewhere).
• BBG sources suggested that “China is said to have told some brokerage firms to reduce proprietary trading in the foreign-exchange market, as authorities step up their defense of the beleaguered currency.”
• There hasn’t been any tangible reaction to news that China has sanctioned Northrop Grumman and a unit of Lockheed Martin over Taiwan arms sales.
• The broader USD has ticked away from lows of the day, with USD/CNH last trading around CNH7.2765 after a brief and limited show below CNH7.2600.
• The bullish technical backdrop has lost some impetus but remains in play as long as CNH7.2392, the Sep 1 low, remains intact.