CNH: Implied Vols Still Low By Historical Standards, USD/CNH Under Key EMAs
USD/CNH tracks near 7.1410 in latest dealings, around slightly from end Friday levels. Even with the 100% tariff threat from US President Trump on Friday (to be implemented on Nov 1), USD/CNH couldn't get above 7.1500. Note the 50-day EMA is at 7.1450, so close by, while the 100-day is higher near 7.1660. For now resistance is around the 7.1500 region. On the downside, recent lows rest at 7.1240.
- Remarks by both the US President and Vice President over the weekend appeared to soften the US rhetoric and leave the door open for negotiations. In remarks this morning Trump noted: “You know for me, you know what November 1 is? It’s an eternity. November 1 is an eternity for me.”(via BBG).
- Per Polymarket, odds of a 100% tariff rate being imposed are around 15% this morning, well off earlier highs above 50% (when this market first started trading).
- For USD/CNH, eyes will be on the USD/CNY fix to gauge China's response, although the broader sense is that recent ranges for USD/CNH will continue to prevail. 1 month implied USD/CNH vol is higher, last near 3.10%, but from an historical standpoint is still very low (see the chart below). The 1 month risk reversal is higher as well, but well off earlier 2025 highs, last at -0.2050. The market may also feel other markets, like equities, may be better expressions of renewed US-China trade tensions.
- China's response to higher tariff levels is likely to be after that fact, i.e. signal comfort around weaker yuan levels after the US imposes higher tariff rates, rather than before. A sharp weaker yuan ahead of the Nov 1 deadline may disrupt US-China negotiations.
- On the data front today we have China Sep trade figures.
Fig 1: USD/CNH 1mth Implied Vol Firmer, But Still Low From An Historical Standpoint
Source: Bloomberg Finance L.P./MNI
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AUSSIE 3-YEAR TECHS: (U5) Bounces Further Off Support
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.550 @ 15:36 BST Sep 12
- SUP 1: 96.430/95.900 - Low Sep 3 / Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are trading off recent lows. A resumption of gains from here would further narrow the gap with resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Any continuation lower would instead strengthen a bearish threat. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would open 96.860, the Apr 7 high.
FED: MNI Fed Preview-September 2025: A Reluctant Return To Easing
We've published our preview of the upcoming FOMC meeting - Download Full Report Here
- The Federal Reserve is set to resume its easing cycle at the September 16-17 meeting with a 25bp cut to the funds rate range to 4.00-4.25%.
- The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
- The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
- The Statement will downgrade the description of the labor market to reflect a rise in the unemployment rate and poor payrolls growth, and is likely to include at least one dissent to the rate decision.
- But with a Committee that is fairly divided on the way forward, Powell will be noncommittal on future action, reiterating that policy is not on a preset course, and upcoming decisions will be data-dependent.
- A key undercurrent is an increasingly activist approach to Fed personnel management from the White House, which leaves the composition of the FOMC uncertain not just over the medium-term but also at this meeting.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 15
RATINGS: Fitch: France Cut To A+ From AA, Portugal Up To A From A-
Fitch has downgraded France's sovereign rating to A+ (with stable outlook) from AA-. Release here.
- Among other factors in the decision, Fitch cites "High and Rising Debt Ratio", "Political Fragmentation Hinders Consolidation", "Weak Fiscal Record", "High 2025 Deficit", "Uncertain Fiscal Consolidation Path", and "Fiscal Rigidities".
- In "Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade", Fitch cites "Public Finances: A sustained increase in government debt/GDP over the medium term, due to failure to implement fiscal consolidation measures and/or a persistent increase in financing costs" and "Macro: Materially lower economic growth prospects and weakened competitiveness." Conversely, potentially leading to positive ratings action would be "Public Finances: Confidence that government debt/GDP will be put on a downward trajectory over the medium term, for example, due to fiscal consolidation and/or stronger economic growth".
- Fitch also raised Portugal to A (stable outlook) from A-, while elsewhere, S&P raised Spain to A+ (stable outlook) from A.
- As MNI wrote earlier, we expected France to be downgraded to A+ and Portugal to be upgraded to A.
