USD/CNH: Turning point as yuan strengthens despite US core CPI strength?
USD/CNH has broken out of the range it’s been in since July, signaling a potential period of consolidation, or even a reversal, from the prevailing bullish trend.
Share this:
USD/CNH has broken out of the range it’s been in since July, signaling a potential period of consolidation, or even a reversal, from the prevailing bullish trend. But market intervention from the People’s Bank of China (PBOC) once again drove the move, adding uncertainty as to whether it will be sustained beyond the near-term.
PBOC not letting up on efforts to support CNH
Having fixed the USD/CNY midpoint rate 889 pips firmer than expectations on Wednesday, continuing to push back aggressively against market forces in onshore trade, the PBOC moved to support the yuan in offshore markets, announcing a string of short-dated bill sales to soak up excess yuan liquidity, making it costly to short CNH against the US dollar.
In the near-term, the PBOC’s actions worked, seeing the USD/CNH fall to a near two-week low. While the daily chart has been nothing but one-way traffic in 2023, the break of the uptrend established in July is noteworthy, suggesting we may see more weakness in the near-term. USD/CNH stalled at 7.2700 on Wednesday, so that would need to be overcome to open up a potential move towards 7.2400, the low struck in early September and where the 50-day MA currently sits.
USD hawkishness may be nearing saturation point
From a fundamental perspective, the inability for the US dollar and US bond yields to push meaningfully higher despite a stronger-than-expected core US CPI print for August was curious, hinting near-term hawkish sentiment may be nearing saturation point. As seen in the daily chart below, US 2-year note yields are not having much success in holding above 5% this cycle, suggesting it may be difficult for yields to break to higher levels.
Source: Refinitiv
China pessimism is already factored in
On the other side of the equation, pessimism towards China’s economy is quickly being baked into market expectations, as demonstrated by the improvement in Citi’s China economic surprise index which now sits at the least-negative level since June. Given this tracks data relative to economist forecasts, it suggests it may only take a stabilisation in economic activity to generate a meaningful market reassessment of the yuan’s outlook, especially when there’s already so much good news factored into the US dollar.
Source: Refinitiv
-- Written by David Scutt
Follow David on Twitter @scutty
How to trade with City Index
You can trade with City Index by following these four easy steps:
- Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the market you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
Latest market news
The complete CFD trading experience
Award-winning platforms, competitive spreads, low commissions and dedicated support.
We live and breathe the markets and are dedicated to helping traders realise their ambitions as we continue to set the industry bar.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
Silver's bullish breakout case builds as bond yields retreat
The Democratic blue wave has sent crude and Treasury yields sharply lower, improving the outlook for precious metals. With gold already breaking higher, could silver be next?
Gold, silver outlook: Sandwiched between bullish bonds and AI angst
XAU/USD and XAG/USD may be approaching a bullish turning point as Treasury futures threaten a breakout. The problem? Both metals have recently been trading more like tech stocks than havens.
USD/JPY Weekly Outlook: Oil shock offsets mounting AI concerns
USD/JPY has barely moved despite tumbling US Treasury yields and a sharp selloff in AI stocks. Can elevated energy prices continue to offset the pressure?
StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation.
StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.