USD/CNH Recovery Continues

USD/CNH continued to recover post the Asia close, getting near 7.1800 on a couple of occasions before trimming losses. We finished up just under 7.1500, which is where we currently sit. The pair is wedged between the 20-day EMA (7.1743) and the 50-day EMA (7.1303). Whilst broader USD sentiment was stronger over the past 24 hours, we have seen fresh China currency underperformance, with the NEER dipping a further 0.34%.

• There is no domestic data out today, with focus likely to rest on domestic bond market moves. The recent sharp spike in yields has prompted regulators to ask banks about their ability to meet short-term obligations.
• Whilst the driver of this move has been a shift into equities and away from fixed income products (typically a risk-on signal for broader sentiment), it has raised some financial stability concerns.
• Elsewhere, the China Dragon index was up 3.71% in US trading (aided by a surge in Alibaba), outperforming other indices. Fresh game approvals for Tencent also helped equity market sentiment.
• China equities are still outperforming broader trends but resurgent US yields have dominated from a currency sentiment standpoint.