- USD/CNH remains pressured around weekly bottom, fades bounce off intraday low.
- US-China talks highlight the need for communication and coordination on macroeconomic policies.
- PBOC injects 190 billion yuan for the second consecutive day.
- Market sentiment cheers equity rally, stimulus hopes ahead of the key data/events.
USD/CNH stays on the back foot for the fourth day in a row during early Tuesday. In doing so, the offshore Chinese currency (CNH) pair benefits from the risk-on mood while also relying on the news concerning the Sino-American dialogues and the People’s Bank of China’s (PBOC) moves.
Early Tuesday in Asia, China's Vice Premier Liu He spoke with US Treasury Secretary Janet Yellen via video call and talked about the macroeconomic situation and bilateral relations, according to a readout from China's commerce ministry shares by Reuters. The news quotes the readout saying, “Both sides said it was important for the two countries to strengthen communication and coordination on macroeconomic policies,” to print fruitful discussions.
Further, the PBOC injects 200 billion yuan into the banking system via seven-day reverse repo on Tuesday when the 10 billion yuan worth of reverse repo contracts expire, suggesting a net 190 billion yuan of liquidity injection. This becomes the second straight day when the Chinese central bank intervened in the markets to keep them liquid.
Elsewhere, firmer prints of the US equity indices joined the resumption of a few cites by China’s Evergande to keep the markets optimistic. It should be noted that S&P 500 Futures refresh record top and the US 10-year Treasury yields pause two-day downtrend by the press time, helping the DXY to keep the previous day’s rebound from the monthly low.
However, hawkish Fedspeak before the blackout period and caution before the advance reading of the US Q3 GDP probe the market bulls, also challenging the USD/CNH bears.
Moving on, USD/CNH traders should pay attention to further qualitative headlines ahead of the US GDP data for fresh direction. Given the risk-on mood and the US dollar’s failure to stay strong, the Chinese currency pair seems to target the yearly low of late.
Technical analysis
Unless crossing the previous support line from mid-July, around $6.3980 by the press time, USD/CNH traders remain directed towards the yearly low of $6.3524.
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