USD/CNH retreats toward 7.2700 on China upbeat economic data, reduces RRR

• USD/CNH retraces the previous day’s gains on China’s positive economic data.
• PBoC has reduced the Reserve Requirement Ratio by 25 bps.
• US Dollar (USD) is trading near its six-month high after the US positive economic data.

USD/CNH retreats from the previous day’s gains, trading lower around 7.2700 during the Asian session on Friday. The pair is experiencing downward pressure due to China’s upbeat macro data.

National Bureau of Statistics (NBS) in China has reported that Retail Sales year-over-year improved by 4.6%, surpassing expectations of 3.0% in August and an improvement from the previous figure of 2.5%. Additionally, Industrial Production (YoY) also exceeded estimates, showing a growth of 4.5% in August compared to a 3.7% rise in July.

These positive economic indicators have been accompanied by additional stimulus measures from China, contributing to an optimistic market sentiment. This optimism is putting pressure on the USD/CNH pair.

People's Bank of China (PBoC) has acted by reducing the Reserve Requirement Ratio (RRR) for a significant portion of the banking system by 25 basis points (bps). This marks the second such reduction this year and is expected to inject more liquidity into the economy, potentially bolstering growth in the world's second-largest economy.

China's actions to boost liquidity and support growth are noteworthy, the USD's trajectory remains influenced by the Fed's policy stance, which could act as a supporting factor for USD/CNH bulls.

US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against six other major currencies, is currently trading near its six-month highs that were reached on Thursday. The spot price is hovering around 105.30 at the time of writing.

US Dollar (USD) is embracing the positive economic data out of the United States (US). The latest data on US Initial Jobless Claims for the week ending September 8 showed a reading of 220,000 new claimants, which was better than the forecasted 225,000. This figure also represented a slight improvement from the previous week's reading of 217,000.

Core Producer Price Index (PPI) for August met expectations with a 2.2% increase, slightly lower than the previous rate of a 2.4% hike. Additionally, Retail Sales showed improvement, rising to 0.6% compared to the previous month's 0.5% figure. This result exceeded market expectations, which had anticipated a slowdown to 0.2%.

Nonetheless, the CME FedWatch Tool has lowered the probability to 35% that the US Federal Reserve (Fed) will carry out a 25 basis points (bps) rate hike in November. This development could reinforce the market caution regarding the likelihood of such a move as the traders carefully assess the evolving economic outlook and the communication coming from the Fed.

Market participants will likely monitor the release of the US preliminary Michigan Consumer Sentiment Index scheduled later in the North American session. Expectations are for a minor decline from the previous reading of 69.5 to 69.1.

In case the actual reading aligns with or surpasses these expectations, it could potentially give the US Dollar (USD) the boost it needs to sustain its upward momentum. The data could provide insights into consumer sentiment and can influence market sentiment and trading decisions about the Greenback.