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USD/CNH - USD/CNY Spread Widens, Industrial Profits Data Out Today

CNH

USD/CNH dips towards 7.1400 were supported post the Asia close, while highs were around 7.1775. We are slightly lower in early trade today (last just under 7.1700), in line with some early softness in the USD against the majors. Today the August industrial profits print is due, which hasn't been a market mover this year.

  • Onshore USD/CNY spot had a sharp dip lower into the close (7.1372), although the level used for today's fixing estimate was higher at 7.1464 (the 4:30pm onshore spot close).
  • If onshore spot holds around these levels it will maintain a decent wedge with USD/CNH. The USD/CNH-USD/CNY has pushed back out to +300pips, although we remain below previous cyclical highs for this metric.
  • As we noted yesterday there wasn't a great deal of follow through from the announcement to raise reserve requirements on forward FX transactions (to 20%), which will make it more expensive to short the yuan.
  • It's not seen as altering the trend but reducing the pace of depreciation. Sell-side analysts state more measures could be deployed if we see no let up in the pace of depreciation.
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