CNH: Underperforms USD Sell Off Amid Dovish PBOC Rhetoric
USD/CNH got to 7.2176 late yesterday, before falling through US trade to 7.2065. We track near 7.2100 in early Thursday dealings. This left CNH little changed for Wednesday's session underperforming broader USD softness (BBDXY -0.34%). Spot USD/CNY finished up at 7.1975, while the CNY NEER (J.P. Morgan index) fell 0.19% to 124.10 on account of yuan underperformance.
- Late CNH weakness reflected dovish rhetoric from PBoC Governor Pan on the sidelines of the NPC. The Governor stated there is ample monetary policy room, while also adding there is also room for a further RRR cut. See this link for more details.
- Officials also expressed confidence in hitting this year's growth target (see this link), while Shanghai will boost FX futures and options products/trading to aid the city's development as a global yuan hub.
- The dovishness around the monetary policy outlook has kept onshore bond yields softer. The 10yr closed under 2.30%. Note we started 2024 closer to 2.7% for this benchmark. Lower US yields through US trade amid slightly weaker jobs data, helped USD/CNH shift lower.
- In the equity space, the Golden Dragon index rebounded nearly 2% in Wednesday US trade, taking positive cues from Hong Kong tech gains. Onshore markets were down modestly in cash trade on Wednesday. Official comments pointed to a continued tightening of equity market regulations, as the new CSRC Chair continues to provide a tighter regulatory grip.
- On the data front today we have Feb trade figures.
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CNH: USD/CNH Not Too Far Off 2024 Highs, Focus Remains On Onshore Equity Sentiment
Dips in USD/CNH to 7.2100 were supported late in Asia Pac trade. The pair pushed higher through London/NY trade, getting to 7.2245, before pulling back to 7.2200, which is where we currently track. CNH lost a modest 0.08% for Monday's session, outperforming the BBDXY's +0.40% gain (amid further US yield gains post Powell and better services ISM data).
- USD/CNY also nudged higher but closed under 7.2000 in onshore Monday trade. The CNY NEER (J.P. Morgan Index) rose 0.26% to 124.5, close to fresh highs back to May last year.
- For USD/CNH, we aren't too far away from earlier 2024 highs at 7.2322. A break above that level could see mid Nov highs at 7.2551 targeted, although this would be above yesterday's upper bound for onshore spot of 7.2491 (+2% above the USD/CNY fixing level).
- Hence, we may see more leaning against yuan depreciation pressures, particularly ahead of the LNY holiday period, which kicks off this Friday. Tighter CNH liquidity may be in focus. CNH deposit rates (Hibor) climbed yesterday but CNH implied yields remain off recent highs for now.
- The other focus point will be on local equity markets. Yesterday saw sharp swings. The CSI 300 ultimately finished 0.65% higher, but the Shanghai Composite was down 1.02%.
- There was a lot of focus from the news wires on tightening trading restrictions for domestic investors to support local bourses, see this link for more details.
- Still, there was limited spill over to CNH from equity market gyrations.
BONDS: NZGBS: Sharply Cheaper Following Another Heavy Session For US Tsys
In local morning trade, NZGBs are 11bps cheaper after US tsys saw a second straight day of heavy selling. US tsys finished near their cheaps, with the 2-year yield 12bps higher at 4.48% and the 10-year at 4.17%, 15bps higher on the day.
- Carryover weakness following Fed Chairman Powell's 60 Minutes interview on Sunday underscored a more cautious view regarding rate cuts: "IT'S UNLIKELY FED WILL HAVE CONFIDENCE TO CUT IN MARCH ... FOMC RATE FORECASTS LIKELY NOT CHANGED MUCH SINCE DEC" BBG.
- Fed speakers towed the line Monday, with Fed Kashkari (re: rate cuts) saying the Fed has time to assess before doing so, economic data is not "unambiguously positive".
- US tsys extended weakness after stronger-than-expected ISM Services across all items, especially prices. ISM Services bounced more than expected in January to 53.4 (cons 52.0) after 50.5 in Dec – joint highest since Sept. Prices paid far stronger than expected 64.0 (cons 56.7) after 56.7 – highest since Feb’23 after the strongest monthly increase since mid-2012. It builds on a +7.7pt jump in manufacturing prices paid to the highest since Apr’23.
- Today, the local calendar is empty, ahead of 4Q Employment and Wages data tomorrow. Australia sees a policy decision from the RBA.
NZD: NZD Hits New Lows After Strong US Data/Powell Interview
NZD was the best performing G10 currencies overnight, however still 0.18% lower for the day after US yields moved higher as a continuation from Powell's 60 minute interview, and stronger than expected US ISM data drove sentiment in the space.
- NZDUSD, despite being the best performing G10 currency, made new lows again overnight after testing the lows in yesterday's Asia session of 0.6050 there was a slight reprieve, before again overnight breaking those levels to trade to a new yearly low of 0.6038. The pair had been trading in the 0.6050/6150 range for the majority of a January and the break and hold below the 0.6050 could signal a further leg down, 20 and 50 day EMA comfortably sit above spot in the 0.6130/6140 range.
- AUDNZD has been pushing lower after starting the week at monthly highs of 1.0756, and currently at 1.0707. The pair has been trading in a trading in a 1.070/1.0850 range all year and has seen multiple attempts at breaking the 1.070 level to no avail, a break and hold below these level could signal a move to mid Oct lows at 1.0650.
- The RBA rate decision is later today while no change to the cash rate of 4.35% is expected, all eyes will be on the RBA Governor Bullock, as she speaks on policy at 1530 local time.
- Finally, note the following option expiry for NZD/USD at the NY cut later: $0.6005(N$703mln)
