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USD/CNH Range Bound, Aggregate Credit Figures Due This Week

CNH

USD/CNH generally tracked lower post the Asia close, although the pair couldn't sustain downside moves beyond 6.7600. We track around this level in early trade today. As has been the norm of late, CNH is generally displaying a fairly modest beta to overall USD trends.

  • Not surprisingly, given this backdrop 1 month implied vol sits not too far above 5%. Since USD/CNH broke higher in April, the 1 month implied vol range has roughly been 5-8%. We may not break lower though ahead of key event risk in the US, with CPI data due tomorrow.
  • Domestically, aggregate credit/new loan figures are due from today onwards (release window is to the 15thof August). Since late last week the consensus estimate for aggregate financing has edged down a little to 1350bn yuan, versus 5173bn yuan in June. If realized this would represent a decent slowdown in credit momentum, see the chart below. New loans are forecast to rise 1125bn, versus 2806bn yuan.
  • Bloomberg notes that sale of residential mortgage back securities has dropped 92% this year, while new home sales are down 32% amidst a continued slowdown, exacerbated by credit woes for property developers and the mortgage boycott. Hence detail in credit/new loan figures will also be eyed.
  • Elsewhere the focus will be on Covid trends, and on-going US-China tensions. US President Biden stated overnight that he didn’t think China would escalate things further beyond recent military drills.

Fig 1: China Aggregate Finance, Rolling 6mth Sum (Assumes July Forecast Realized)

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USD/CNH generally tracked lower post the Asia close, although the pair couldn't sustain downside moves beyond 6.7600. We track around this level in early trade today. As has been the norm of late, CNH is generally displaying a fairly modest beta to overall USD trends.

  • Not surprisingly, given this backdrop 1 month implied vol sits not too far above 5%. Since USD/CNH broke higher in April, the 1 month implied vol range has roughly been 5-8%. We may not break lower though ahead of key event risk in the US, with CPI data due tomorrow.
  • Domestically, aggregate credit/new loan figures are due from today onwards (release window is to the 15thof August). Since late last week the consensus estimate for aggregate financing has edged down a little to 1350bn yuan, versus 5173bn yuan in June. If realized this would represent a decent slowdown in credit momentum, see the chart below. New loans are forecast to rise 1125bn, versus 2806bn yuan.
  • Bloomberg notes that sale of residential mortgage back securities has dropped 92% this year, while new home sales are down 32% amidst a continued slowdown, exacerbated by credit woes for property developers and the mortgage boycott. Hence detail in credit/new loan figures will also be eyed.
  • Elsewhere the focus will be on Covid trends, and on-going US-China tensions. US President Biden stated overnight that he didn’t think China would escalate things further beyond recent military drills.

Fig 1: China Aggregate Finance, Rolling 6mth Sum (Assumes July Forecast Realized)

Keep reading...Show less