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USD/CNH Range Bound, Equity Flows Strong, PMIs On Tap Today

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USD/CNH spent the post Asia close tracking familiar ranges. We couldn't get above 6.7600, but dips sub 6.7500 were supported. We currently track around the 6.7570 level. The focus today is on the Jan PMIs, which are expected to show marked improvement.

  • Both PMIs are forecast to jump sharply, particularly the services index (back to 52.0 from 41.6), see this link for more details.
  • Elsewhere the China Dragon Index saw a sharp pull back in US trade, down 4.0%. Yesterday onshore equities rose, but the CSI 300 ended up 0.47% after opening +2% higher.
  • Northbound stock connect flows were 18.6bn yuan, bringing inflows for the past month to 138.7bn yuan. This is very elevated from an historical stand point but offshore investors were coming from an underweight position late in 2022.
  • In any case CNH gains have been somewhat less correlated with inflows over the past few weeks, although this obviously includes the LNY period, see the chart below.

Fig 1: CNH/USD Changes Versus Northbound Equity Flows

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USD/CNH spent the post Asia close tracking familiar ranges. We couldn't get above 6.7600, but dips sub 6.7500 were supported. We currently track around the 6.7570 level. The focus today is on the Jan PMIs, which are expected to show marked improvement.

  • Both PMIs are forecast to jump sharply, particularly the services index (back to 52.0 from 41.6), see this link for more details.
  • Elsewhere the China Dragon Index saw a sharp pull back in US trade, down 4.0%. Yesterday onshore equities rose, but the CSI 300 ended up 0.47% after opening +2% higher.
  • Northbound stock connect flows were 18.6bn yuan, bringing inflows for the past month to 138.7bn yuan. This is very elevated from an historical stand point but offshore investors were coming from an underweight position late in 2022.
  • In any case CNH gains have been somewhat less correlated with inflows over the past few weeks, although this obviously includes the LNY period, see the chart below.

Fig 1: CNH/USD Changes Versus Northbound Equity Flows

Keep reading...Show less