USD/CNH Dips, PBoC Warns On Inflation Risks

USD/CNH dipped in line with broader USD weakness overnight. The pair got to a low of around 6.7160/65 before support kicked in. We now sit back at 6.7270/75. Note the 50 day MA comes in at 6.7256. We are still waiting for aggregate finance figures to print for July, otherwise though the domestic data calendar in empty in China today.

• The CNH underperformed against the yen, reversing trends seen over the past week or so. CNH/JPY is back below 19.73, with the 100 day MA in focus (this level comes in at 19.74). EUR/CNH is just below 6.9300.
• Domestically, the focus is likely to be on local bond yields after the PBoC's quarterly report highlighted domestic inflation risks. The central bank noted 3 sources of potential inflation pressure, rising pork prices, rebounding domestic consumption and higher energy prices.
• This comes after yesterdays below consensus inflation outcomes, with the CPI and PPI both coming in weaker than expected. Core inflation also painted a benign/soft backdrop for domestic demand.
• In any event, the PBoC's rhetoric is likely to see market expectations of any further rate cuts tempered further. The 2yr bond yield is around 2.17%, up from recent lows sub 2.10%. The 10yr is around 2.75%.
• US President Biden has reportedly shelved potential plans to scrap some tariffs on China. This follows Pelosi's recent trip to Taiwan, which has raised tensions between the two countries.