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Yuan Underperforms On Continued Equity Weakness, PBoC Pledges Policy Support

CNH

USD/CNH didn't see a meaningful retracement until the NY session when the pair dipped back below 7.1600 on broader USD softness/yield weakness. Earlier highs were marked around 7.1750, while the pair tracks near 7.1640 in early trade today. USD/CNMY ended up at 7.1514 for Monday's session, while the CNY NEER (J.P. Morgan Index) slipped 0.19% to 123.06.

  • The yuan underperformance was in line with continued China equity weakness. The CSI 300 ended Monday's session down 1.29%, with further North Bound stock connect outflows.
  • In US trade, the Golden Dragon index lost a further 1.47%, falling for the third straight session.
  • One measure of China equity futures ticked higher in US trade, as the PBoC signaled further policy support. This may include a possible RRR cut, see this BBG link for more details. It remains to be seen if this boosts sentiment further today.
  • CNH overnight rates are rising in HK, suggesting a tighter liquidity backdrop, which may stem offshore yuan weakness.
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