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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
CNH
USD/CNH is finding some resistance above the 6.7850 level, which capped USD/CNH up moves in mid and late May. Still, fundamental headwinds persist. We currently sit in the low 6.7700 region.
- Calls for fresh easing in domestic policy settings remains. The securities journal quoted onshore analysts calling for lower medium term lending facility rates in the second half, and a lower RRR, either at the mid-point this year or by year-end.
- Tomorrow the 1yr MLF rate is expected to be left unchanged at 2.85%. More liquidity support could be provided by a larger MLF rollover.
- A lower MLF rate would highlight the policy divergence with the Fed and should be seen as a CNH negative all else equal.
- CNH 12 forward points have dropped into negative territory for the first time since 2019. This largely owes to the relentless move higher in US yields.
- Onshore covid trends remain adverse, with case numbers continuing to trend higher in Beijing and Shanghai. Beijing has delayed the re-opening of most schools, while Shanghai suspended a return of dine-in services. The Minhang district also plans mass covid testing on June 18th.
- 1 month USD/CNH implied vols are back close to earlier YTD highs, but the risk reversal still has room to catch up, see the chart below. The fixing bias also returned back to neutral today, although from a 5-day trend standpoint is still leaning again deprecation pressures.
Fig 1: USD/CNH 1 Month Implied Vol and Risk Reversal
Source: MNI - Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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