Yuan Benefits From More Forceful PBoC Action

MNI (London) - USD/CNH showed a little more than 600 pips below its Wednesday high in Asia-Pac hours, as the redback benefitted from a much stronger-than-expected lean in the USD/CNY mid-point fixing (resulting in a 680-pip mid-point/BBG survey differential, the widest spread seen since last year’s yuan tumult).

Fig.1: Differential Between USD/CNY Mid-Point Fixing & BBG Survey Median

Source: MNI - Market News/Bloomberg

• The PBoC also tweaked limits to allow companies to borrow more overseas, opening the door to the potential for an uptick in capital inflows, providing further support to the yuan.
• Flows also factored into the move, with RTRS flagging USD sales vs. CNH on the part of state-owned banks.
• Still, moves below CNH7.1800 have been limited, with spot last dealing around CNH7.1860
• Also on the wider China fundamentals front, BBG sources reported that the Chinese authorities are reportedly considering easing home buying restrictions in the country’s big cities, which would represent the latest leg of support for that sector if enacted.
• This comes on the back of the multi-point plan to boost household consumption released earlier this week, while continued headline flow re: more favourable treatment of private businesses has since followed.
• Technically, the 50-DMA provides the initial area of support in USD/CNH, while the recent lows and highs provide the horizontal lines of interest.

Source: MNI - Market News/Bloomberg

• Net northbound HK Stock Connect flows were essentially flat and have been tilted towards selling since the multi-month high in net inflow terms registered last week.
• The CSI 300 index has faded from the recent stimulus speculation-induced highs, with the lack of forceable action leaving the index at the lowest levels seen since late June (focus remains on this month's Politburo meeting re: a potential stimulus announcement).