USDCNH continues to push higher amid the......>

CHINA: USDCNH continues to push higher amid the ongoing collapse in interest

rate differentials between the two countries. MNI has been arguing over the past

month that the diverging trajectories of interest rate expectations leaves the

yuan at risk of a sharp downside more, which appears to be playing out. 

- The pair has taken out the June 19 high and shows no sign of reversing from

its current level of 6.51. The next resistance level comes in at 6.60, which

marked the breakout level for the pair back in December 2017. 

- The spread of 2-year swaps between the two countries has fallen to just 29bps

(3.23% for China and 2.83% for the US). Shanghai Securities News on Thursday

reported that China announced it will use targeted required reserve ratio cuts

and other monetary policy tools to support the provision of credit to micro and

small-sized bank during the executive meeting of the State Council held by

premier Li Keqiang. While the report also stated that China will keep its

monetary policy prudent and neutral, it is looking increasingly dovish.