USD/CNH grinds higher around mid-6.7700s as ADB cuts China growth forecast for 2022

USD/CNH remains sidelined inside a choppy range between 6.7700 and 6.7775 during Thursday’s Asian session. In doing so, the offshore Chinese Yuan (CNH) pair struggles to justify the recently downbeat growth forecasts from the Asian Development Bank (ADB), as well as the covid fears. That said, the market’s anxiety ahead of the key monetary policy announcements from the European Central Bank (ECB) could be cited as the catalysts behind the latest inaction.

“China's economy will likely expand 4.0% this year, the ADB said, a drop of 1 percentage point from its April forecast, but will recover lost ground in 2023 with intact growth seen at 4.8%,” per Reuters.

On Wednesday, China’s covid numbers crossed the 1,000 mark for the first time in two months and propelled the virus woes. On the same line were the Sino-American tussles over Taiwan Strait as China warned the US not to provoke over the transit of the Taiwan Strait. Even so, US Defence Department Spokesman John F. Kirby said that the US has no plans to reduce its presence in the Indo-Pacific to counter China's threat, per Reuters.

Elsewhere, the US dollar benefited from the return of the recession fears, mainly emanating from Europe due to the gas crisis in the bloc. In this regard, Russian President Vladimir Putin mentioned that they are yet to see in which condition the equipment for Nord Stream 1 will be after returning from maintenance, per Reuters. However, European Commission President Ursula von der Leyen said on Wednesday that it was a likely scenario that there could be a full cut-off of Russian gas, as reported by Reuters. It should be noted that the fears over gas might have pushed the International Monetary Fund (IMF) to cut its growth forecasts for Germany. That said, the IMF lowered its growth forecasts for Germany to 1.2% for 2022 and 0.8% for 2023. In its previous forecast, the IMF was expecting the German economy to grow by 2% in both years.

Also portraying the region’s economic woes are the political woes in Italy as Prime Minister Mario Draghi won a confidence motion, but as three major cotillion parties boycotted the vote and hence Mr. Draghi may again resign and trigger early elections in the nation.

It’s worth noting that the People’s Bank of China (PBOC) left benchmark policy rates unchanged during Wednesday’s policy announcement and Chinese Premier Li Keqiang signaled flexibility on the economic growth rate.

Amid these plays, Wall Street closed with reduced gains and the US 10-year Treasury yields also snapped a two-day uptrend at around 3.03%. Further, the S&P 500 Futures also drop 0.25% intraday to 3,952 by the press time.

Moving on, a lack of major data/events, as well as the pre-ECB anxiety, could restrict USD/CNH moves. However, the market’s pessimism might keep buyers hopeful.

Technical analysis

A successful run-up beyond the 10-DMA, at 6.7452 by the press time, directs USD/CNH towards a two-month-old horizontal resistance area around 6.7860-90.