USD/CNY: Slips below 7.0900 to trim PBOC-led gains
|- USD/CNY takes a U-turn from 7.0934, still positive on a day after flashing two-day losses.
- PBOC cuts 14-day reverse report rate, ADB slashes economic forecasts.
- Virus woes, geopolitical tension with India weigh on the quote.
- Second-tier US data, risk catalysts to offer near-term directions to the traders.
Having initially surged to 7.0934, USD/CNY currently drops to 7.0890, up 0.06% on a day, during Thursday’s Asian session. Even so, the pair snaps the previous two-day fall as virus woes join the People’s Bank of China’s (PBOC) rate cut. Additionally, China’s tussle with India and the Asian Development Bank’s (ADB) downbeat economic forecasts also weaken the prices.
The PBOC offered a surprise rate cut during early Thursday. The Chinese central bank cut the rate on 14-day reverse repurchase agreements to 2.35% vs. 2.55% previous. Though, the 7-day reverse repo remains unchanged at 2.20%.
Other than the PBOC rate cut, the fears relating to the fresh spread of the coronavirus (COVID-19) join the Indian-China tension to drag the quote downwards. Although the latest numbers from China, especially from Beijing recede from the latest highs, the Chinese capital is still under partial lockdown while holding down major flight operations. Elsewhere, India recently gave more power to its military while dealing with the dragon nation. New Delhi also bears the allegations of disapproving the purchase of Chinese goods and trigger trade war.
Elsewhere, the ADB slashed China’s 2020 growth forecast to 1.8% from 2.3% while expecting a 7.4% growth for 2021.
It should also be noted that the market’s risk-tone seems bogged down by the pandemic fears, which in turn pays less attention to US President Donald Trump’s signal of the cure of the deadly disease. In doing so, the US 10-year Treasury yields dropped 2.6 basis points (bps) to 0.70% whereas stocks in China post mild losses but those from Japan decline over 1.0% by the press time.
Looking forward, traders will have to closely observe the qualitative fundamental factors for immediate direction amid a lack of major data/events ahead of the US session.
Technical analysis
21-day EMA near 7.0935 restricts the pair’s immediate upside, which in turn highlights the importance of a 100-day EMA level of 7.0638 during the USD/CNY quote’s further weakness.
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