OIL: Lower US Product Inventories Support Oil, Supply Outlook In Focus

USD/CNH tracked lower post the Asia close on Monday, as broader USD sentiment faltered. CNH gained a modest 0.06% for Monday's session, with the DXY and BBDXY indices both down around 0.30%. The dollar was weighed as US Treasuries finished moderately higher after a flat open Monday, back near Friday's post NFP highs, stocks gaining as well as rate cut pricing into year end gathers momentum. USD/CNH tracks near 7.1225/30 in early Tuesday dealings, just up from post NFP lows from Friday near 7.1220. 

• Spot USD/CNY finished up on Monday at 7.1298, while the CNY CFETS basket tracker eased by 0.12% to 96.65, per BBG.
• For USD/CNH technicals, focus will remain on recent lows at 7.1159 from late August. A clean break sub this level could see sub 7.1000 targeted. On the topside the 50-day EMA resistance point is trending lower, now around 7.1670.
• US-CH yield differentials have broken to fresh lows back to Sep 2024 for the 2yr differential. The 10yr spread is back to levels last seen in Dec 2024, see the chart below. This is pointing to further downside risks in USD/CNH, particularly in terms of 2yr spreads.
• On the equity side, onshore markets lagged broader regional gains on Monday, but the Golden Dragon index rose 2.12% in Monday US trade (the index is at highs back to March).
• The local data calendar has August new loans/aggregate finance figures due (from today until 15th Sep), while tomorrow, Aug inflation is out. 

Fig 1: USD/CNH Versus US-CH Government Bond Yield Differentials 

Source: Bloomberg Finance L.P./MNI 

• 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: 96.580 @ 16:00 BST Sep 8
• 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 further off the 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.

Source: Bloomberg Finance L.P./MNI