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CNY Fix Back To Stronger Bias

CNH

The CNY fix was fixed stronger than the market expected. The market expectation was 6.7872, versus the actual outcome of 6.7854. This resumes the trend of leaning against CNY depreciation pressures, albeit very modestly.

  • Today's surprise was only a modest one, -18pips in USD/CNY terms. It does go back to last week's down trend of downside surprises, after yesterday delivered the first upside surprise in 9 sessions.
  • However, given the small magnitude of the surprise the market hasn't reacted a great deal. USD/CNH is now sitting at fresh lows for the day sub 6.7800. However, this has more to do with broader USD weakness, rather than the fix. The early trend in onshore spot trading has been firmer as well, spot USD/CNY is sub 6.7700.
  • Volatility metrics are also coming down, with 1 month USD/CNH implied now back to 6.65% (versus a recent high of 8.25%). The 1 month risk reversal is also lower, back closer to 1.00, after nearly touching 1.70 a little over a week ago.
  • These factors signal some degree of calmness is returning to the market, after USD/CNH rose close to 6% in the past month. Fundamentals are still a clear headwind for the China currency, but the pace of depreciation may ease.
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