CNH Records Largest Daily Drop Since Falling Through 7.00

USD/CNH got to highs around 6.8200 overnight. For the Monday session the pair gained just over 1.15%, which is the largest single day rise since 2019, when the pair broke above 7.00 for the first time. There was also towards the end of April this year, when the pair also rose more than 1% in a session. We currently track close to 6.8150, with light flows so far in the Asian session.

• The near-term focus will be the extent to which the authorities lean against further depreciation pressures, at least in the near term. We aren't too far away from previous YTD highs, which come in just under 6.8400. SAFE officials were also quoted yesterday as stating that local FX markets will remain stable.
• In the options space, the 1 month risk reversal is higher but at +1.2275 is still comfortably below recent highs (+1.47 in mid July and above +1.60 in May). It's a similar story for vol, where the 1 month implied sits just under 6%, also comfortably below previous YTD highs.
• In this space, there appears scope for a stronger USD outlook to be priced in.
• Onshore media also states that more needs to be done in terms of supporting growth (according to a PBoC backed paper). That is also the rough consensus of sell-side analysts.
• The next focus point will be next Monday's 1yr and 5yr LPR announcements. There is no Bloomberg consensus for these outcomes yet, but we would be surprised if the market didn't expect cuts for both rates. The 1yr sits at 3.7% currently, the 5yr at 4.45%.