CNH: USD/CNY Fixing Lower, Error Term Back To Positive

The USD/CNY fix was set at 7.1991, versus a BBG market consensus of 7.2197.

• Today's fixing is sub the 7.2000 level for the first time since Apr 7. It comes despite the stronger USD index levels overnight, although some offset was from lower USD/CNY levels.
• The fixing error narrowed to -206pips, from -375pips, which goes against the norm of wider fixing error during periods of USD strength.
• USD/CNH has fallen sub 7.1900 and is eyeing earlier May lows at 7.1845. 

• CHINA SETS YUAN CENTRAL PARITY AT 7.1991 TUES VS 7.2066

The Westpac May consumer sentiment report for Australia rose 2.2%m/m to put the index back at 92.10. We remain sub recent highs, with 95.9 recorded back in March of this year. 2023 lows back under 80 are some distance away, but equally we haven't been above the 100 level since early 2022. 

• At face value, the headline result suggests a fairly moderate to flattish pace of consumer related spending. This is consistent with recent ABS reports on retail and household spending, which pointed to some moderating in spending trends after a bump higher in the H2 last year (aided by fiscal initiatives).
• The chart below plots the Westpac consumer sentiment index versus retail sales y/y (which is the orange line on the chart).
• There was a positive with time to buy a household item rising to 93.2, a 3.5% gain in the month. Again though this index remains off recent highs of 97.10, recorded in March of this year.
• Unemployment expectations fell 2.1% to 121.3 (for the 12 months ahead), suggesting that a tight labour market backdrop will still prevail. 

Fig 1: Westpac Consumer Sentiment Index Versus Retail Sales Y/Y

Source: Westpac/MNI - Market News/Bloomberg