CNH: USD/CNY: Fixing Error Remains Steady

The USD/CNY fixing printed at 7.1139, versus a Bloomberg consensus of 7.1109.

• The fixing is well below Friday's 7.1358 outcome, but the error term returned to positive territory (+30pips, versus Friday's -96pip outcome).
• This still suggests some leaning against yuan appreciation pressures.
• USD/CNH was last at 7.1100, slightly up from session lows. Broader USD softness amid Tsys yield losses remains the early focus point.

• The PBOC is conducting stress testing of risk exposures to bonds for medium and large size financial institutions.
• According to the PBOC backed ‘Financial News’ the move is to avoid the formation of a unilateral expectation for bond yields.
• It is reported that the test is not aimed at banning trading by financial institutions.
• The PBOC has long demonstrated its unease with the one-way trend in long term bond yields and the accumulated risks for investors who perceive that trend will continue for long periods.
• The PBOC action appears not designed to ‘raise the central level of interest rates,’ the article noted. Rather the action seeks to develop the understanding that bond yields can rise as well as fall and that investors should not invest without sufficient understanding.

Spot USD/KRW is down sharply in the first part of trade, off 0.55%, with the pair last near 1323 (session lows rest near 1320) . This is fresh lows back to March for the pair. The 1 month NDF is under 1320, around 0.20% stronger versus end NY levels on Friday.

• Broader USD sentiment remains very much on the back foot in the first part of Monday trade. Further weakness in US cash Tsys yields is a clear driver (front end 2yr yields are off 4bps to 3.875%).
• Equity sentiment is mostly positive outside of Japan equity losses. The Kospi is +0.30% and up above the 2700 level. Offshore investors aren't buying into the rally though, with a modest -$59mn in equity outflows so far today.
• For spot USD/KRW downside focus is likely to rest with mid March lows near 1308 from earlier this year. Highs from last week in the pair were capped just under 1344.
• The authorities plan to support small and medium sized businesses, with 40trln won earmarked (see this BBG link for more details).
• On the data front, we have retail sales/department store sales in the first part of the week. IP for July and the cyclical leading index print on Friday.