USD/CNH remains on the front foot since the break above 7.2000, we are now above 7.2300. Onshore spot has followed suit, now above 7.2250. Note the upside in spot is capped at 7.2529 today (+2% above today's fixing rate at 7.1107). Broad based USD gains, amid higher UST yields and the White House pushing back on a fresh Plaza-type FX accord, is adding to the momentum.
- Outside of fresh record highs in USD/CNH, this is the highest levels in spot USD/CNY since early 2008. However, the FX regime was very different back then as USD/CNY was trending lower to correct overvaluation amid very strong GDP growth/rising trade surpluses.
- Hence it remains to be seen how relevant such levels are in today's context. We had a spike to 7.2270 in mid February 2008 (according to the Bloomberg daily chart). Beyond that we spent some time between 7.25/7.28 through January of that year.
- USD/CNH vols are moving, the 1 week implied to 8.60%, which is still below previous YTD highs of just under 11%. For the 1 month we are at 7.77%, closer to YTD highs near 8.5%.