USD/CNH plummets below 6.8500 on firmer China PMIs ahead of Fed’s favorite inflation data

• USD/CNH drops to fresh one-week low, down for the second consecutive day, on upbeat China activity data for March.
• China NBS Manufacturing PMI rose more than expected while Non-Manufacturing PMI crossed previous figures.
• Easing hawkish bias for the Fed’s next move, risk-on mood join mixed US data to drown USD/CNH price.
• US Core PCE Price Index, risk catalysts eyed for clear directions.

USD/CNH renews weekly low near 6.8440 during early Friday, declining for the second consecutive day amid broad US Dollar weakness and upbeat China data.

That said, China’s headline NBS Manufacturing PMI rises to 51.9 versus 51.5 expected and 52.6 prior while the Non-Manufacturing PMI jumps to 58.2 from 56.3 previous readings. On the same line could be comments from China's Premier Li Qiang who said that the economic situation in March is even better than in January and February.

Apart from upbeat data from the biggest commodity user, as well as the major consumer, USD/CNH also bears the burden of the risk-on mood and receding hawkish Fed bets, not to forget the mixed US data.

It should be noted that Federal Reserve Chairman Jerome Powell joined three other Fed Officials to back further rate hikes on Thursday, citing the need to tame the inflation woes. However, mixed US data raise doubts about the Fed policymakers’ hawkish rhetoric and rather concentrated on their rejection of banking crisis woes to weigh on the US Dollar, as well the Fed bets.  

While portraying the market’s bets, the CME’s FedWatch Tool suggests a nearly 50% chance of a 0.25% rate hike in the May Fed meeting, versus 60% the previous day.

Talking about the US data, final readings of the US fourth quarter (Q4) Gross Domestic Product (GDP), also known as the Real GDP, marked an easy Annualized growth number of 2.6% versus 2.7% previous forecasts. It’s worth noting that the Q4 Personal Consumption Expenditure (PCE) Prices matched 3.7% QoQ forecasts and prior while the Core PCE figure grew to 4.4% QoQ versus 4.3% expected and prior. Moving on, the Weekly Initial Jobless Claims rose to 198K for the week ended on March 25 versus 191K prior and 196K market forecasts. 

Moving on, the Federal Reserve’s (Fed) preferred inflation gauge, namely the US Core Personal Consumption Expenditure (PCE) Price Index for February, will be crucial for clear directions as markets anticipate softer inflation to weigh on hawkish Fed bets.

Also read: US February PCE Inflation Preview: Bad news for the Dollar, good news for the Fed?

Technical analysis

Failure to cross the 100-DMA hurdle surrounding 6.9140 directs USD/CNH bears towards an upward-sloping support line from early February, near 6.8280 by the press time.