Yuan Weakens To May Lows, US-CH Yield Differentials Tracking Higher

USD/CNH rose above 7.2500 post the Asia close on Wednesday, amid broad USD gains. We got to around 7.2550, which was at intra-session highs from the start of this month. Spot USD/CNY finished up at 7.2413, which was the highest close since late April.

• USD/CNH is above all key EMAs, the nearest being the 20-day near 7.2390. April 25 highs rested near 7.2740 in terms of a potential upside target.
• The broader backdrop supports a higher USD/CNY fixing today, although we haven't been above the 7.1100 handle since January of this year for the fix. Yesterday's upside ceiling in USD/CNY spot was near 7.2500, but we didn't get close to that level during the session.
• Elsewhere, rate differentials have ticked back up in favour of the USD, particularly at the front end, the 2yr spread last above +305bps. This is tracking back towards late April cyclical highs. The FOMC Mins released in Wed US trade didn't shift US yields greatly, but remained consistent with the recent steady drumbeat of Fed commentary around caution on inflation/rate cut timing.
• Our China policy team noted late yesterday that the chances of a RRR cut has risen with the pick up in government debt issuance (see this link for more details).
• On the data front today we have April Swift Global Payments data.