USDCNH edged lower overnight and has.......>

CHINA FX: USDCNH edged lower overnight and has opened strong again this morning

in spite of the ongoing narrowing of interest rate spreads between China and the

US, with the 1-year spread now at just 55bps. USDCNH currently sits at 6.3896

and remains above lateral support at 6.3749 seen on June 7. 

- The yuan's modest strength was likely supported by the slight drop in the

dollar index as investors saw the Fed's move as a 'dovish hike', causing the

euro to rise and investors to expect the PBOC to set the yuan's parity rate

stronger. USDCNH has been much more closely correlated with the DXY over recent

months compared with EM FX, with the 30-day rolling correlation currently at

0.81. 

- While the exact composition of the PBOC's currency basket (via which its sets

its daily midpoint) is not public information, recent price action suggests that

it is much more closely linked to developed market FX than emerging market FX.