CNH Tracking Broader USD Momentum ​​

USD/CNH dipped briefly below the 6.8400 level overnight, as the DXY was at its lows. We rebounded from there though and currently track close to 6.8550. CNH is following broader USD trends, although in the past 24 hours has underperformed most parts of the G10 FX complex at the margin.

• The domestic data calendar remains quiet today, with the continued focus on the fallout from severe domestic drought conditions.
• Power outages are not expected to be as bad as last year, when coal shortages hit, but fresh concerns around food crops is rising. This could impact food inflation later this year (see this link for more details).
• Elsewhere, the onshore Securities Journal ran a front page story stating that widening interest rate differentials with the US should have a limited impact on the currency, with the strong trade surplus providing an offset. It also stated a weaker yuan is a positive for export competitiveness.
• At face value this suggests limited concern around current levels of USD/CNY. Broadly, this also fits with the benign fixing trend, whereby the authorities have not been aggressively leaning against depreciation pressures.