📝Entered Long USD/CNH, Target A Move Towards 6.95: Citi Strategy

Our liquidity analysis suggests that the threshold conditions for a RRR cut may be met in September, and we watch closely if the PBOC announces an RRR cut on Sep. 5 or Sep.15 -- the usual RRR reassessment dates. A smaller 25bps RRR cut could be about keeping interbank liquidity stable, while a larger 50bps RRR cut could be partially offset by lower rollover of PBOC’s policy loans, the so-called MLF, given heavy maturities in coming months

Bond supply pressure seems not as aggressive as previously estimated, as fiscal stimulus lags expectations. Sees 10y CGB yield in 2.55-2.75% range as the market and monetary policy may enter a phase of assessing the policy effects. For the yuan, regulatory attention to FX is on the rise, but unlikely to push back on fundamentally driven moves. Long USDCNH via options expecting to push toward 6.95

- Citi Strategy