CNH: USD/CNH Back Above 7.1800, CNY Basket Tracker Higher
USD/CNH tracks near 7.1830 in early Friday dealings, after posting little net change for Thursday's session. We are up form intra-session lows of 7.1716 from yesterday, but broader ranges continue to hold in the pair. USD indices rose in Thursday trade, the BBDXY up 0.35%, the DXY around 0.40% firmer. Higher US yields in the aftermath of the stronger-than-expected US PMI data, helped broader USD sentiment, particularly against the yen. Spot USD/CNY finished up at 7.1805 yesterday, while the CNY CFETS basket tracker rose a little further to 96.39, up for the third straight session.
- Yesterday's lows in USD/CNH came not long after the onshore spot open, with USD/CNY getting to 7.1687 before support emerged. These moves came after the USD/CNY fix printed at 7.1287, fresh lows back to early Nov last year.
- This leaves a reasonable wedge between spot USD/CNY and the fixing outcome, although we have seen such episodes before. The lack of directional correlation at the moment may reflect local capital flow pressures, whilst broader USD sentiment has firmed in recent sessions ahead of Fed Chair Powell's key speech at Jackson Hole.
- In the equity space, we continue to see China market outperformance, with the CSI 300 up 0.39% yesterday, while the Golden Dragon index gained 1.35% in Thursday US trade. Still, outperformance from China equities isn't spilling over to CNH at this stage.
- On the data front we still await July FDI, while next week delivers July industrial profits.
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CNH: USD/CNH Range Bound Despite Fresh USD Weakness, CNY Basket Lower
USD/CNH was little changed in Tuesday trade, with the pair tracking near 7.1700 in early Wednesday dealings. Tuesday's range was close to 7.1800 on the topside, while a late dip under 7.1700 drew some support. Broader USD sentiment was softer, with the BBDXY losing a further 0.40%, while the DXY fell by close to 0.50%. Spot USD/CNY finished up at 7.1690, while the CNY CFETS basket tracker fell by 0.24% to 95.87, as the yuan underperformed renewed USD weakness.
- For spot USD/CNH recent ranges continue to prevail amid a very low backdrop. The 50-day EMA resistance point remains intact on the topside, last around 7.1900. Earlier July lows near 7.1500 will be a focus point on the downside.
- An extension lower for US yields appears to have assisted the USD move on Tuesday, helped by Treasury Secretary Bessent providing a more optimistic tone regarding Powell’s short-term future as the Fed Chair.
- US-CH yield differentials continue to track lower, but for the 2yr and 10yr tenors we are above late June lows. The 10yr spread is around +265bps.
- Equity sentiment remains positive for China, with the CSI 300 closing near 4119, fresh highs back to Nov last year. In US trade, the Golden Dragon index gained +1.7%. We continue to see the China to global equity ratio firm, but this isn't providing much positive impetus to CNH.
- "US Treasury Secretary Scott Bessent said he will meet his Chinese counterparts in Stockholm next week for their third round of trade talks aimed at extending a tariff truce and widening the discussions." (per BBG, see this link).
- The local data calendar is empty today.
OIL: US Crude & Gasoline Stocks Lower
Bloomberg reported that US oil inventories fell 577k barrels last week, while they rose 314k at Cushing, according to people familiar with the API data. There was a gasoline drawdown of 1.2mn but a distillate build of 3.5mn. The official EIA data is out Wednesday.
AUSSIE 3-YEAR TECHS: (U5) Core Rally
- 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: 96.620 @ 15:42 BST Jul 22
- SUP 1: 95.900 - 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 traded strong to start the week, buoyed by a global rally in core bonds. This again challenges resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Instead, a continuation lower would strengthen a bearish theme. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would refocus attention on 96.860, the Apr 7 high.
