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USD/CNH Pushes Above 7.2700 Amid Easier Liquidity, CNH-CNY Basis Widens

CNH

USD/CNH tracked higher post the Asia close on Wednesday. We sit near highs in early Thursday dealing, last near 7.2735. CNH lost 0.17%, so in line with broader USD index gains (BBDXY +0.12%, DXY +0.17%). Spot USD/CNY onshore finished up at 7.2460, so very close to the top end of daily trading band.

  • The CNH-CNY basis has rewidened back towards +300pips, but remains sub 2024 highs. Our London team noted some background talk of a potential CNY devaluation, although they stressed this isn't a widely discussed matter, see this link for more details.
  • We have continued to see easier liquidity conditions in the CH market, 1 week forward implied yields back to just under 2% (recent highs above 5%), while the 1 month is down to 3.84%, which has likely encouraged some re-engagement with CNH shorts.
  • 1 week implied vol in CNH is higher, last near 3.42%, but well below earlier 2024 highs, 1 month was last at 3.44%, also well off earlier 2024 highs.
  • Recent official commentary/rhetoric has generally been around yuan stability and strengthening overnight of FX markets (per SFAE remarks yesterday). Still, we see no let for onshore spot in terms of proximity to the daily trading band limit.
  • For USD/CNH earlier April highs aren't too far away at 7.2831. On the downside, the 20-day EMA is trending higher and last near 7.2535/40.
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