USD/CNH Holds Above 6.8500, Eyes On CNY Fixing

Dips below 6.8500 in USD/CNH were supported overnight. We got close to 6.8460 before the pair rebounded. We now sit back at 6.8545/50, with the USD firmer in early trade today against the majors. The onshore FX regulator stated late yesterday that FX markets are continuing to operate smoothly, while expectations around the exchange rate remain stable.

• The focus initially today will be on the USD/CNY fixing. This comes after yesterday's much stronger than expected outcome relative to market expectations (-120 pips in USD/CNY terms).
• The last time we had a surprise of this magnitude (start of February 2020) it was followed by a -5pip outcome (in USD/CNY terms) the next day. Note also, the 5-day rolling of the error term on the fixing sits at -151pips, fresh lows back to early May of this year.
• Elsewhere, the focus will be on any positive spill over from the sharp rise in the China Dragon Index overnight, which rallied +6.26%. This comes after talks to avoid delisting of China companies from US exchanges gained traction (see this link for more details).
• Onshore equities rose yesterday, with the composite index up nearly 1%. The market continues to digest the latest round of stimulus announcements, although the broad sell-side consensus is that the measures won't be enough to bring a dramatic turnaround in China's growth fortunes (at least in the near term).
• Onshore bond yields have edged higher this week, with the 2yr back above 2.10%, while the 10yr is back to 2.66%. The US-CH 2yr spread is still drifting higher though (last at +126bps).