AUSSIE BONDS: Twist-Steepener, Still Wary Of AU-US 10Y Narrowers

• CHINA SEP CPI -0.3% Y/Y VS MEDIAN -0.2%; AUG -0.4%: NBS
• CHINA SEP CPI +0.1% M/M VS +0.0% M/M AUG
• CHINA SEP FOOD PRICES -4.4% Y/Y VS -4.3% Y/Y AUG
• CHINA SEP NON-FOOD PRICES +0.7% Y/Y VS +0.5% Y/Y AUG
• CHINA SEP PPI -2.3% Y/Y VS MEDIAN -2.3%; AUG -2.9%: NBS
• CHINA SEP PPI +0.0% M/M VS +0.0% M/M AUG

• CHINA PBOC CONDUCTS CNY43.5 BLN VIA 7-DAY REVERSE REPO WEDS

The USD/CNY fix has printed under 7.1000 for the first time this year. At 7.0995 we are well under the market expectation of 7.1320. This leaves the fixing error around recent wides at -325pips. CNH has rallied post the fixing outcome and broader USD sentiment is also softer. 

• Today's fixing outcome will reinforce the resilient yuan backdrop even in the face of renewed US-China tensions. This point is reinforced by the chart below, which plots the USD/CNY fixing against the BBDXY index.
• For USD/CNH, we are back under 7.1300, which isn't too far from recent lows (7.1240). Focus will be on whether we can test back under 7.1000. This may be a bridge too far in the near term, until we see greater clarity on the US-China outlook. Still, today's fixing is likely to help cap the topside around the 7.1500 region. 

Fig 1: USD/CNY Fixing Versus BBDXY Index 

Source: Bloomberg Finance L.P./MNI