7.00 Within Sight, Trade & FX Reserves Due Today​​

The early bias in USD/CNH has been higher. The pair is back to 6.9750, shy of overnight highs just above 6.9800. Still, with the proximity of 7.00 looming, options markets remain calm. The 1 month implied vol sits just above 6%, tracking recent ranges and well below earlier YTD highs of above 8%. Equally, the trend in the risk reversal has been down not up. This space is not suggesting run away depreciation if we see a move above 7.00. On tap today is August trade figures and FX reserves data.

• The trade figures are likely to maintain recent trends. The surplus is expected at $92.70bn, versus $101.26bn previously. Export growth is forecast to slow to 13.0% y/y from 18.0%, while import growth is estimated at 1.1% y/y (from 2.3%).
• The healthy trade surplus position is very much a symptom of weak domestic demand conditions.
• Also out today is FX reserves for August. The market expects a slip to $3065bn from $3104bn prior.
• The CNY fixing will be watched today. Recall yesterday the 5-day rolling sum of the error term edged up slightly (in USD/CNY terms). So, whilst the fixing bias remained firm, it may not have been strong enough to cap USD/CNH. The pair moved higher post the fixing.
• Domestic covid cases will be the other focus point. Note Beijing has reported 14 cases for yesterday.