CNH: USD/CNH Supported On Dips, Underperforms Majors Amid Tariff Headwinds
USD/CNH has rebounded back above 7.3300, but sits slightly lower in latest dealings. We are still close to +400pips from earlier lows close to 7.2900. The USD/CNY fixing was little changed despite Thursday's sharp USD fall, which provided little fresh encouragement for further USD/CNH downside. Spot USD/CNY has also been supported on dips since the open as well, last above 7.3200.
- These moves come despite further USD index losses in the first part of Friday trade the BBDXY down a further 0.60%, albeit up from session lows.
- This is leaving CNH underperforming against the majors. CNH/JPY was last near 19.58, close to recent lows of 19.55. EUR/CNH has pushed towards 8.3000, with 2020 highs above 8.3300 within sight, see the chart below. Beyond that is the 8.5000 region.
- The US tariff level of 145% on China imports is aimed at pushing China towards the negotiating table, but at face value the two-sides still appear some distance from any meaningful discussions around a deal.
- China equities are providing relative outperformance, but until greater clarity is attained around the tariff outlook it may not mean much for CNH. US-CH yield differentials are also tracking higher, but shaky foundations in terms of broader ownership of US assets is certainly a factor. This suggests such spreads may not be that useful for determining USD/CNH trends in the near term.
Fig 1: EUR/CNH Looking At Multi Year Highs
Source: MNI - Market News/Bloomberg
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AUSSIE BONDS: Cheaper, Narrows Ranges, Data-Light Session, US CPI Later Today
ACGBs (YM -6.0 & XM -7.5) are weaker and near cheaps on a data-light session.
- “Australia has failed to secure an exemption from US steel and aluminum tariffs despite Prime Minister Anthony Albanese's government's lobbying efforts. Albanese called the tariffs "entirely unjustified" and "economic self-harm" on the part of the US, but said Australia would not take reciprocal measures and would instead work to diversify exports.” (per BBG)
- Cash US bonds are slightly richer in today’s Asia-Pac session after yesterday’s heavy NY session. The February CPI report is the scheduled highlight of today’s US session, while some attention will be paid later in the morning to the Bank of Canada which is expected to deliver a 25bp cut.
- Cash ACGBs are 5-7bps cheaper with the AU-US 10-year yield differential at +18bps.
- Swap rates are 4-7bps higher, with the 3s10s curve steeper.
- The bills strip has bear-steepened, with pricing -1 to -3.
- RBA-dated OIS pricing is flat to 3bps firmer across meetings today. A 25bp rate cut in April is given a 9% probability, with a cumulative 65bps of easing priced by year-end (based on an effective cash rate of 4.09%).
CNH: Onshore & Offshore Spot Targeting Simple 200-day MA Levels
USD/CNH has tracked USD/CNY lower since onshore FX markets re-opened. Both CNH and CNY are up only around 0.10% against the USD, but continue to solidify recent stronger trends versus the USD. Both pairs were back near 7.2230 in recent dealings.
- The only modest downtick in the USD/CNY fixing didn't deter onshore spot markets. The pair quickly gapped lower to 7.2161 in early dealings. We have since stabilized somewhat, but upticks are being faded.
- Current levels were last seen in Nov last year, while the simple 200-day MA comes in close to 7.2175, so a sustained break of that may see round figure support at 7.2000 targeted.
- For USD/CNH, it is a similar backdrop (the simple 200-day MA close to 7.2220).
- The yuan is outperforming a softer local equity backdrop so far today, but losses are very modest. The USD BBDXY index is a touch higher, but aggregate G10 losses against the USD are also very modest at this stage.
Fig 1: USD/CNY Spot Close To Simple 200-day MA
Source: MNI - Market News/Bloomberg
