USDCNH remains above the 6.94 level......>

CHINA YUAN: USDCNH remains above the 6.94 level following the PBOC fix, trading

at 6.9422, as upside pressure on the pair mounts owing to continued equity

weakness and rising US-China rate differentials. 

- Equity weakness is driving the PBOC to adopt an increasingly loose monpol

stance, which should weaken the yuan.

- The Chinese 2-year swap currently sits at 2.86%, down another 1bp today to

early September lows, which has seen the spread versus the US rise to a new

cycle high of 24.4bps. With Chinese headline CPI recently rising above that of

the US, the real yield situation is increasingly dollar positive. 

- The fact that the US did not label China a currency manipulator may suggest

further upside in the pair before the PBOC looks to intervene.