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USD/CNH Back To Low 6.6900 Region, Caveats On Stimulus

CNH

After USD/CNH couldn't breach 6.7200 early yesterday, we tracked lower, getting close to 6.6900 late in NY trading. We currently trade around 6.6940.

  • Much of the focus rested on China's proposed $220bn (1.5 trillion yuan) stimulus boost, whereby local governments can bring forward special bond sales from 2023 to the second half of this year.
  • While clearly a positive development, some analysts have highlighted important caveats. Firstly, it could leave a fiscal cliff in 2023. Secondly, special purpose bond issuance needs to be tied to a specific project, so the stimulus could take a while to implement. Infrastructure investment is also less resource intensive compared to previous cycles.
  • Nevertheless, anything that aids the China outlook can still underpin the outperformance theme. This week has seen some reversal in equities outperformance, with major developed market equities seeing some positive impetus.
  • CNH resilience persists though, with USD/CNH flat on the week versus the DXY's 1.75% gain so far.
  • On the Covid front, Shanghai reported a further 45 cases yesterday, down slightly from Wednesday's number, although no cases were found outside quarantine. Beijing reported no new local cases yesterday.
  • The data calendar is quiet today, but tomorrow delivers PPI and CPI prints for June. PPI is expected to ease to 6.4% from 6.0%, but CPI is forecast to rise to 2.4%, versus 2.1% previously. Note from Saturday onwards aggregate financing and new loans for June are also due. Further gains are expected In both prints (agg finance to 4192.5bn yuan versus 2792.1bn previously, and new loans to 2400bn yuan from 1883.6bn yuan).
  • Also note that US President Biden will reportedly meet with economic advisors on Friday (US time) to discuss possible tariff reductions.
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