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USD/CNH Rebounds From Lows Sub 7.2400


USD/CNH sits comfortably earlier lows. We got to 7.2392, but now sit back closer to 7.2600. Lows came not long after the firmer than expected CNY fixing and after the announcement of the FX reserve requirement cut. Onshore equities have also opened higher, although gains have been contained to a degree (earlier at +0.50%). HK markets remain shut due to a typhoon.

  • The Caixin PMI produced only a modest blip lower in USD/CNH (sub 7.2450), before USD demand emerged.
  • On the FX RRR cut, Standard Chartered notes: The key for such measures is not its direct impact - based on size of foreign currency deposits of $822b - a 200bps deduction from the reserve ratio will unleash liquidity of only $16b. “This is a very small amount and won’t be sufficient to narrow interest rate differential between CNY and USD by itself.” Still, it does reinforce the PBoC's desire to stabilize CNY sentiment. “USD/CNH upside is now largely capped at 7.33-7.35, and we should expect a period of stabilization of the pair near term.”
  • For USD/CNH we are sub the 20-day EMA (near 7.2700), while the 50-day sits near 7.2245 on the downside.

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