USD/CNH Sees Sharp Pull Back On Liquidity Squeeze

(MNI Australia) USD/CNH saw a sharp reversal post the Monday Asia close. From highs around ~7.3360 we pulled back sub 7.2800 by the NY session. From here we stabilized somewhat although couldn't get back above 7.3000, last tracking around the 7.2875 level. CNH gained 0.24% for Monday's session. USD/CNY finished around the 7.2830 region, with the CNY NEER (J.P. Morgan index) a touch firmer to 121.53.

• The strong CNH rebound appeared to be largely driven by a liquidity squeeze. Bloomberg cited trader sources as attributing this to "a combination of less CNH supply from big Chinese names in offshore yuan swap market since last week, and liquidity demand derived from PBOC's bill sales tomorrow."
• 1 month CNH forward points soared to -12.50pts, we were at -160pts late last week. The USD/CNH 1 month implied yield rose above 5%, fresh highs back to 2018. Bloomberg also reported state banks continuing to sell USD in the offshore yuan market.
• These moves offset a poor equity market close, with the CSI 300 finishing under 3730 on Monday, down 1.44% (amid disappointment from the steady 5yr LPR rate). We did see the Golden Dragon index rise +0.82% in Monday US trade though.
• Elsewhere, Politico reports that US Commerce Secretary Gina Raimondo is expected to visit China this week for talks on the Biden administration's plans to "de-risk" critical supply chains (see this link).
• Finally, the authorities are also considering stronger action to address LGFV risks, whereby the PBoC may set up liquidity tool for bank to provide low-cost funds to LGFVs.