CNH: USD/CNH 20-day EMA Support Zone Holds, Tariff Headlines Drive Volatility
USD/CNH saw lows of 7.3132 on Monday, as the Washington Post reported that the incoming Trump administration may water down its tariff plans. We rebounded from these levels, back above 7.3500, as Trump stated the report was fake news. In early Tuesday trade, USD/CNH tracks near 7.3470. CNH gained close to 0.20% for Monday's session.
- Onshore spot finished up near 7.3280, with dips in this pair also supported. USD/CNY still finished slightly higher for Monday's session, despite the broader USD pull back (BBDXY index off over 0.60%). BBG notes state banks were reportedly USD sellers close to the 7.3300 level.
- The CNY CFETS basket tracker edged down nearly 0.20% to 101.89, still close to recent cycle highs.
- For USD/CNH, intra-session lows from Monday were close to the 20-day EMA support point (near 7.3110). Recent highs just under 7.3700 remain intact.
- Cross asset headwinds persist for CNH. US-CH yield differentials remain elevated and continue to suggest dips in the pair will remain supported, given uncertainty over Fed cuts in 2025 and the prospect of further PBoC easing. Relative equity trends have also shifted in favor of offshore markets in the past week.
- Still, the PBoC sent a clearer and stronger signal on stabilising the yuan in its Q4 monetary policy meeting, emphasising “strengthening market management” whilst deleting “enhancing exchange rate flexibility” which appeared in its Q3 meeting, PBOC-run newspaper Financial News reported. Hence USD/CNY fixings may remain sub 7.2000 until we have firmer details on Trump's tariff plans.
- The local data calendar has Dec FX reserves on tap later today, but greater focus will rest on Thursday's inflation data.
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MNI UST Issuance Deep Dive: Dec 2024 (2/2)
Throughout November’s policy and market volatility, though, Treasury auctions largely impressed, with 5 of 7 nominal coupon sales trading through.
- Auction Results: November’s nominal coupon auctions were generally strong, with five out of seven auctions trading-through, of which four saw a positive reading on MNI’s Relative Strength Indicator (RSI). The remaining two auctions; 3 and 20-year auctions tailed. See page 2.
- Upcoming Supply: Issuance resumes next week with sales of $58B in 3Y Note, $39B in 10Y Note (reopen), and $22B in 30Y Bond (reopen). December is set to see $15B in nominal Treasury coupon sales, in addition to $22B in 5Y TIPS and $28B FRN for a total of $365B – slightly below the Oct and Nov totals of $369B which were joint-highest since Oct 2021.
- MNI's review includes a calendar of upcoming auctions and buyback operations.
US TSYS/SUPPLY: MNI UST Issuance Deep Dive: Dec 2024 (1/2)
MNI's latest US Treasury Issuance Deep Dive has just been published (PDF link here):
November proved a dramatic month for Treasuries. Yields were volatile before and after the Nov 5 election - after ending October at 4.28%, 10Y yields peaked at five-and-a-half-month high just above 4.50% mid-month before closing November just below 4.18%, as markets attempted to price in the implications of a Republican “sweep”.
- Also buffeting rates was speculation over the would-be successor to Treasury Secretary Yellen. President-elect Trump’s selection of hedge fund manager Scott Bessent was greeted with bull flattening in the curve, implying perhaps that he’s seen as more cautious on fiscal deficits than some of the alternatives (he has expressed support for halving the annual budget shortfall to 3% of GDP).
- The first quarterly Refunding process of Bessent’s Treasury is in early February, by which point we may start to have a better sense of the incoming administration’s approach to both fiscal policy and to more issuance-specific considerations such as duration management.
- Bessent for instance has argued that Yellen’s Treasury erred from a risk management perspective by boosting short-duration issuance, and there are suggestions he would be in favor of reversing course, telling Bloomberg in June “When rates are very low, you should extend duration…I think it’s very unfortunate what Secretary Yellen’s doing. She’s financing at the front end, and she’s making a bet on the carry trade, which is not good risk management.”
US LABOR MARKET: MNI US Employment Insight: Soft Enough To Keep Fed Cutting
Our latest Employment Insight has just been published and emailed to subscribers.
