USD/CNH Back Below 6.8000

USD/CNH continued to drift lower post the Asia close. Current levels of 6.7930 aren't too far away from the lows recorded late in the NY session. As we noted yesterday, USD/CNH has tended to consolidate post sharp moves higher (1% or more in a single session). Broader USD sentiment helped, but CNH has outperformed the DXY trend over the past 24 hours. USD/CNH has fallen by 0.35% in the past 24 hours, while the DXY is roughly flat over this period in percentage change terms.

• The domestic focus today is likely to rest with onshore bond yields. The 2yr yield closed yesterday just under 2.08%, up from intra-day lows of below 2.06%. Lows from early August remain intact for now. The 10yr yield also stabilized ahead of the 2.62% level, closing just under 2.64%.
• The US-CH 2yr differential edged higher overnight, +118bps, as front end US yields recovered. The 10yr differential is around +16bps, trending in the USD's favor but well below earlier YTD highs in June of +66bps.
• Support for USD/CNH may be evident in the high 6.7800 region, given a number of previous highs have been recorded around this level in recent months.
• The broad sell-side consensus appears to be that more needs to be done from a stimulus point to underpin the growth backdrop through the second half.
• China Premier, Li Keqiang, urged key districts to step up efforts to support the economy (he was speaking to officials from districts which account for around 40% of China's GDP). He pressed more government bond issuance to support local investment.
• China equities were helped yesterday by better property sub-index performance (+1.50%), following the proposed plan for state-guaranteed bond issuance, but overall sentiment wasn't boosted. The Shanghai composite was only up 0.05%, while the CSI 300 ended down close to 0.2%.