CNH: USD/CNH Up From Lows, Implied Yields Elevated But Unlikely To Shift Trend
USD/CNH saw earlier lows of 7.3437, but we sit slightly higher now, last near 7.3480. This is a touch firmer for the session in NCH terms, but gains are less than 0.10% at this stage. Earlier highs in the pair were marked at 7.3573.
- Overall USD/CNH remains comfortably within recent ranges. Earlier lows this week (7.3132), on tariff headlines, remain some distance away. The 20-day EMA support point is close to 7.3170.
- The steady fixing bias, which is capping USD/CNY upside above 7.3300, will act as a constraint on USD/CNH upside in the near term. The record Hong Kong yuan bill issuance, set at 60bn yuan for the middle of this month, should tighten offshore liquidity or keep it tight, all else equal. CNH implied yields remain elevated. 1wk tenor 4.42%, 1 month 3.95%, 3.3%, 6 month 2.79%, 2.30%, compared to recent history.
- Still, such a backdrop is unlikely to be a trend shifter for USD/CNH, given still elevated US-CH bond yield differentials and the looming tariff threat from the Trump administration.
- China bond yields are a little higher post the earlier inflation data, which showed further improvement in core inflation, but yield rises are only modest at this stage.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
China's Investment Potential Remains Substantial - NDRC Official
China’s potential investment in green transformation and industrial upgrading remains substantial, especially in quantum technology, artificial intelligence and aerospace, said Zhao Chengfeng, deputy director of the investment department at the National Development and Reform Commission, Xinhua News Agency reported. Meanwhile, high levels of water conservancy investment are needed given flood disasters, while urban underground pipeline renovations to improve gas, water and heating supply need about CNY4 trillion investment over the next five years, said Zhao.
China November CPI Impacted By High Temperatures
China’s lower than expected November CPI print of 0.2% y/y was mainly due to high temperatures and a strong rebound in the supply of fruit and vegetables, according to Wang Qing, chief macro analyst at Orient Securities. Looking ahead, Wen Bin, chief economist at China Minsheng Bank, said CPI would be supported by higher seasonal winter demand for meat, while temperature drops may affect the production and storage of fresh food. CPI may also rise as incremental policies continue improving domestic demand and consumer confidence, Wen added.
AUSTRALIA DATA: NAB Business Survey Points To Another Weak Quarter
November NAB business survey came in weak with conditions down to 2.4 from 7.2, the lowest since end-2019 outside of Covid. Confidence fell to -2.8 from +5.3. There was weakness across components but cost pressures picked up while final product prices remained in line with the historical average. The data is suggesting another soft quarter, but little further progress on inflation. The RBA is widely expected to leave rates at 4.35% later today.
Australia NAB business conditions & outlook
- Labour cost growth remained at 1.4% 3m/3m but purchase costs increased to 1.1% from 0.9% but still below this year’s average. Final product prices rose at 0.6%, unchanged from October, but retail prices eased to 0.6% from 1.1%.
- Capacity utilisation remains above the series average implying that inflation pressures will only come down slowly.
- The RBA has been concerned about services inflation and NAB reported that services conditions were higher.
Australia NAB price/cost components
Source: MNI - Market News/Refinitiv
- Employment moderated to 2.5 from 3.3 but remains above the low for 2024. November jobs data print Thursday and the unemployment rate is forecast to rise 0.1pp to 4.2%.
- Profitability fell to -0.8 in November from +5.2, the first negative since January 2022. Q3 profits fell again driven by the mining sector and that seems to have continued in Q4 given softer commodity prices. Trading fell to +5.4 from +13, the lowest since pandemic-impacted 2020.
- Forward-looking orders fell to -4.8 from -3.0, but remain in line with the 2024 average. The drop was driven by mining and retail. Exports also deteriorated.
