CNH: USD/CNH Eyeing Test Sub 7.1200, US-CH Yield Differentials Lower
USD/CNH tracked lower post the Asia close on Monday, as broader USD sentiment faltered. CNH gained a modest 0.06% for Monday's session, with the DXY and BBDXY indices both down around 0.30%. The dollar was weighed as US Treasuries finished moderately higher after a flat open Monday, back near Friday's post NFP highs, stocks gaining as well as rate cut pricing into year end gathers momentum. USD/CNH tracks near 7.1225/30 in early Tuesday dealings, just up from post NFP lows from Friday near 7.1220.
- Spot USD/CNY finished up on Monday at 7.1298, while the CNY CFETS basket tracker eased by 0.12% to 96.65, per BBG.
- For USD/CNH technicals, focus will remain on recent lows at 7.1159 from late August. A clean break sub this level could see sub 7.1000 targeted. On the topside the 50-day EMA resistance point is trending lower, now around 7.1670.
- US-CH yield differentials have broken to fresh lows back to Sep 2024 for the 2yr differential. The 10yr spread is back to levels last seen in Dec 2024, see the chart below. This is pointing to further downside risks in USD/CNH, particularly in terms of 2yr spreads.
- On the equity side, onshore markets lagged broader regional gains on Monday, but the Golden Dragon index rose 2.12% in Monday US trade (the index is at highs back to March).
- The local data calendar has August new loans/aggregate finance figures due (from today until 15th Sep), while tomorrow, Aug inflation is out.
Fig 1: USD/CNH Versus US-CH Government Bond Yield Differentials
Source: Bloomberg Finance L.P./MNI
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AUSSIE 10-YEAR TECHS: (U5) Recovers With Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 14:34 BST Aug 8
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed a poor NFP print. This keeps Aussie 10-year futures toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
SECURITY: Trump To Sign Trilateral Peace Accord With Armenia/Azerbaijan Shortly
US President Donald Trump is shortly due to sign a trilateral peace agreement with Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev at the White House. LIVESTREAM The event will provide another opportunity for Trump to style himself as peacemaker, after touting success in brokering peace deals between Rwanda/Congo, Cambodia/Thailand, and India/Pakistan.
- The accord aims to resolve a decade-long dispute over the sovereignty of Nagorno-Karabakh - a breakaway Azerbaijani province that was under de facto Armenian control from the dissolution of the Soviet Union until a 2020 war.
- Trump described the meeting on Truth Social as a “historic peace summit,” noting that the US will also sign “Bilateral Agreements [to] fully unlock the potential of the South Caucasus Region.”
- White House spokeswoman Anna Kelly told reporters that Trump would sign deals with both Armenia and Azerbaijan on energy, technology, economic cooperation, border security, infrastructure and trade.
- A White House official said: "It's about the entire region, and [the leaders] know that that region is known to be safer and more prosperous with President Trump."
- Reuters reports that the US will have development rights to build transportation links in the strategic Zangezur Corridor, a mountainous stretch of Armenian territory between Azerbaijan and its Nakhichevan exclave.
- Politico notes: “But whether this is just a photo opportunity or a lasting end to a conflict that has undermined stability in a region dominated by Russia and Iran will depend on whether the US can address several key challenges.”
FED: Balance Sheet Runoff Continues At Steady $20B/Month Pace (2/2)
Fed asset holdings were little changed in the past week. SOMA runoff totaled $2.8B (composed of $4.2B less nominal Tsy holdings and $1.4B more TIPS), with emergency lending/liquidity facilities $0.7B lower.
- Over the last 4 weeks, the $20B/monthly expected QT pace was roughly adhered to: MBS fell $18B, with Treasury net holdings down around $2B (a fall in TIPS holdings offsetting a slight rise in nominals).
- Discount window usage accounted for the fall in lending facility usage this week; takeup is now down to $4.9B, down $1.3B in the last month and down from the 1-year high of $6.4B set in July which looks to have been a temporary blip higher.
