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USD/CNH Back Above 6.7000

CNH

USD/CNH hit a high overnight of close to 6.7250, in line with broad based USD strength. Still, CNH outperformed on crosses, despite negative tariff and covid headlines. USD/CNH has been steady in early trade today, currently close to the 6.7100 level.

  • To recap, reports overnight suggested only very limited US tariff relief on just $10bn worth of China goods was being considered, versus duties that currently apply for approximately $370bn worth of imports from China.
  • The US is also pushing for the Netherlands to ban ASML from selling chip-making equipment to China. Note the China Dragon index still finished nearly 1.50% higher in US trading.
  • In terms of Covid, Shanghai will conduct mass testing in 9 of the city's 16 districts. Cases in city are trending back up, with 24 reported for Tuesday, although all were found in quarantine. Still, fears of a fresh lockdown for Shanghai have edged back up. The city of Xi'an, with a population of 13 million, will also go into a 7 day lockdown.
  • This unwinds some of the positivity created by recent positive data surprises, most recently yesterday's Caixin services beat. Still, the China Citi EASI index is almost back to flat versus a trough of -74% in mid-June. The US and EU EASIs remain in downtrends.
  • Much depends on how the domestic Covid situation unfolds, but CNH outperformance can still persist, given its lower beta to global risk off episodes. CNH versus crosses rather than against the USD may be the preferred play though.

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