CNH: USD/CNH Edges Up, But CNH Outperforms On Key Crosses

The NZD had a range Friday night of 0.5867 - 0.5918, Asia is trading around 0.5890. US Stocks closed pretty poorly on Friday night after a solid day of advancing higher. How the US downgrade by Moody’s is digested by the market will have a direct bearing on risk this morning, you would expect an initial reflex lower.

• Bloomberg - “New Zealand's monthly prices suggest inflation is gaining momentum, pointing to upside risks to the Reserve Bank of New Zealand's 2Q25 outlook.”
• “The CPI indicator rose 0.8% month on month in April, following a 0.4% rise in March, leaving it 2.7% higher than a year earlier.”
• “The indicator suggests a potential inflation challenge, with a seasonally adjusted reading of 4.7%, and may limit the RBNZ's room to maneuver, making an outsize rate cut unlikely.”
• The NZD now seems to be comfortable in a 0.5800/0.6050 range and awaits a catalyst to provide the impetus to break-out.
• The support back towards 0.5800 has held very well, and while this continues to hold expect buyers to be around on dips. The first target is the highs just above 0.6000, a break here is needed to regain momentum.
• CFTC Data showed Asset managers continuing to build back their shorts, while the leveraged community continued to reduce their own short.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.5915(NZD1.06Bln)

• Data/Event : NZ Performance Services Index, PPI

  Fig 1: NZD/USD CFTC Data

  

  Source: MNI - Market News/Bloomberg

USD/CNH tracks around 7.2100 in early Monday dealings, little changed from end Friday levels in the US. The pair was supported sub 7.2000 on Friday, but maintained recent ranges throughout the session. Early G10 focus is seeing some yen outperformance, which reflects late Friday news from the US around the US Government credit rating downgrade by Moody's. US equity futures are tracking lower, along with US Tsy futures. There is little spillover to CNH at this stage though.

• Spot USD/CNY finished up 7.2137 on Friday, while the CNY CFETS basket tracker edged down further to 96.69, but was still slightly up for last week.
• For broader USD/CNH technicals little has changed. Downside focus will rest at recent YTD lows just under 7.1800, while upside focus will rest on recent highs around 7.2500, which also coincides with the 200-day EMA.
• The China currency could receive benefit if we see a return to the sell US asset related theme, in the wake of Moody's credit downgrade for the US. The China to global equity ratio ended last week close to April lows.
• Locally today we have April home prices, as well as monthly activity figures for April. The market consensus is for retail sales and IP to moderate a touch from the March pace. 

TYM5 reopens at 110-03, down 0-07 from closing levels in today’s Asia-Pac session.

• Friday night US 10-year yields had a range of 4.3863% - 4.4770%, closing around 4.47%. 
• Treasury yields ended higher Friday night, with the yield curve higher (2s10s +0.68 at 47.329, 5s30s +1.98 84.926 ).
• Bloomberg - “Moody's Ratings downgraded the US credit score to Aa1 from Aaa due to an increase in government debt and a higher interest burden.”
• “The downgrade comes as the federal budget deficit is running near $2 trillion a year, and the overall debt level for the US has surpassed the size of the economy.”
• “The move follows downgrades by Fitch Ratings and S&P Global Ratings, with Moody's citing a decline in fiscal metrics that can no longer be counterbalanced by the US' economic and financial strengths.”
• The 10-year Yield looks likely to test the 4.5% resistance area again on the downgrade. A sustained break above this level could see another round of selling targeting the 4.75% area. Support towards 4.35% held Friday night, dips back towards here should see supply emerge once more