CNH: Outperforms USD Rebound Amid Funding Squeeze/Steady CNY Fixing

CNH rose a touch for Tuesday's session, outperforming the broader USD rebound. USD/CNH tracks close to 7.3400 in early Wednesday trade, with dips towards 7.3300 supported on Tuesday. Spot USD/CNY was little changed at 7.3280, just under the upper daily trading limit. Still, the CNY CFETS basket tracker fell 0.45% to 101.43 on Tuesday, continuing to correct off recent highs. 

• To the extent the USD/CNY fixing remains steady near 7.1900, it will continue to limit onshore spot upside above 7.3300. In turn the CNH-CNY basis, which has spent little time beyond 400pips in the past year, may be a headwind for USD/CNH if we rebound into the 7.3600/7.3700 region.
• Another focus point for markets is reduced liquidity in the offshore market, with implied yields surging. The 1 week for CNH is above 5%, while 1 month is above 4%. The overnight CNH Hibor got to 8.1%, the highest since June 2021.
• Recall on Monday headlines crossed around more planned bill sales in Hing Kong in January from the PBoC.
• Still, as we approach Trump's inauguration on Jan 20, dips in USD/CNH are likely to be supported. The 20-day EMA support zone has held since early Nov. This level rests at 7.3134 currently.
• The local data calendar is empty until tomorrows inflation print. Late yesterday Dec FX reserves printed, falling to $3.2trln, which was below expectations ($3.25trln) but we remain above 2023 lows for reserves.