📝FX Market Reaction Muted On Chinese Authorities' Measures: UBS Strategy

The PBoC's announcement it will cut the reserve requirement ratio for banks in early February, per Bloomberg, follows on from Tuesday's Bloomberg report the Chinese authorities were preparing a package of measures to stabilise the stock market. The FX market's reaction was somewhat muted to the initial stock market announcement with the desk's flows dominated by Fast money interest to buy the dip in USDCNH both in the cash and options space. A RRR cut had been somewhat expected prior to Chinese New Year but there have also been extra efforts from officials to step up countercyclical adjustments.

Stops have been going through this morning on short CNHcross positions versus KRW/THB/INR which will likely continue. With little change to the fundamental picture and a continued lack of big bang fiscal stimulus, the desk still favours buying USDCNH on dips sub-1.1700, especially with positioning now looking cleaner. - UBS Strategy