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USD/CNY Spot Continues To Drift Higher, CNH-CNY Basis Narrower

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Spot USD/CNY has drifted higher since the onshore open, the pair was last near 7.2450, slightly above Monday session highs. This is line with a modest firming in the fixing result over the past week since we pushed above 7.1000. The chart below overlays onshore spot against the fixing trend.

  • Modest yuan depreciation may continue to be accepted by the authorities. Onshore spot remains sub 2023 highs near 7.3500. The CNH-CNY basis has also narrowed, with tighter liquidity helping to curb appetite for CNH shorts. USD/CNH was last near 7.2525.
  • The next domestic focus point will be next week's April PMI prints. China growth expectations have firmed in recent weeks, although the broader sell-side consensus still appears to biased for a weaker yuan.
  • The authorities stated last year that they were prepared to wait out the stronger USD backdrop as the Fed cycle should eventually turn.
  • Such a scenario may remain the playbook, although as we approach Q4, US election risks will also come under focus.

Fig 1: Spot USD/CNY Spot & USD/CNY Fixing Trends

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Spot USD/CNY has drifted higher since the onshore open, the pair was last near 7.2450, slightly above Monday session highs. This is line with a modest firming in the fixing result over the past week since we pushed above 7.1000. The chart below overlays onshore spot against the fixing trend.

  • Modest yuan depreciation may continue to be accepted by the authorities. Onshore spot remains sub 2023 highs near 7.3500. The CNH-CNY basis has also narrowed, with tighter liquidity helping to curb appetite for CNH shorts. USD/CNH was last near 7.2525.
  • The next domestic focus point will be next week's April PMI prints. China growth expectations have firmed in recent weeks, although the broader sell-side consensus still appears to biased for a weaker yuan.
  • The authorities stated last year that they were prepared to wait out the stronger USD backdrop as the Fed cycle should eventually turn.
  • Such a scenario may remain the playbook, although as we approach Q4, US election risks will also come under focus.

Fig 1: Spot USD/CNY Spot & USD/CNY Fixing Trends

Keep reading...Show less