- USD/CNH extends the previous day’s pullback from monthly high.
- China Retail Sales improved, Industrial Production reversed previous contraction in May.
- PBOC injects CNY 200 billion while keeping one-year MLF unchanged at 2.85%.
- Fed Chair Powell’s ability to tame inflation, recession woes and meet market expectations will be a test.
USD/CNH holds lower ground near the intraday bottom surrounding 6.7250, near 6.7350 by the press time, as strong China data joins the People’s Bank of China’s (PBOC) action to please the bears during early Wednesday. Also exerting downside pressure on the offshore Chinese yuan (CNH) pair is the US Treasury bond yields’ retreat.
China’s Retail Sales improved to -6.7% versus -7.1% expected and -11.1% prior while the Industrial Production reversed -0.7% forecast with 0.7% expansion during May. Earlier in the day, Australia’s Westpac Consumer Confidence for June dropped below -0.7% market forecasts to -4.5%, versus -5.6%.
PBOC injected CNY200 billion via one-year medium-term lending (MLF) facility on Wednesday. Additionally, the Chinese central bank also matched wide market expectations while keeping the rate for one-year MLF operation rate unchanged at 2.85%.
On the other hand, a softer US Producer Price Index (PPI) for May allowed the US bond coupons to retreat from the 11-year high and trigger a pullback in the US dollar ahead of the key Federal Open Market Committee (FOMC).
The US PPI matched 0.8% MoM forecasts, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.
US 10-year Treasury bond yields drop 5.6 basis points (bps) to 3.43% as the bond coupons ease from the fresh high since 2011. The same underpins the mildly bid S&P 500 Futures around 3,750 and weighs on the USD/CNH afloat.
Looking forward, major attention will be given to the Fed’s interest rate decision and the economic forecasts as Chairman Jerome Powell has a tough task of pleasing markets and taming inflation at the same time.
It’s worth noting that the US diplomats have recently pushed the Fed, indirectly, towards aggressive action, which in turn propelled the market’s expectations of a 75 bp rate hike from the US central bank. White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively. The same enables the CME’s FedWatch Tool to print 99% probabilities for a 75 bp rate increase during today’s meeting.
Other than the Fed, US Retail Sales for May, expected 0.2% MoM versus 0.9% prior, will also be important to watch for USD/CNH. Additionally, the covid conditions and the Sino-American tussles are extra catalysts to watch for the pair traders.
Read: Fed June Preview: In the world we live in, a 50 bps hike is a dovish surprise
Technical analysis
A one-week-old ascending trend line joins the previous resistance line from May 13 to highlight 6.7200-7150 is the key support. Alternatively, recovery moves need validation from monthly horizontal resistance near 6.7900.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD regains traction, recovers above 1.0700
EUR/USD regained its traction and turned positive on the day above 1.0700 in the American session. The US Dollar struggles to preserve its strength after the data from the US showed that the economy grew at a softer pace than expected in Q1.
GBP/USD returns to 1.2500 area in volatile session
GBP/USD reversed its direction and recovered to 1.2500 after falling to the 1.2450 area earlier in the day. Although markets remain risk-averse, the US Dollar struggles to find demand following the disappointing GDP data.
Gold climbs above $2,340 following earlier drop
Gold fell below $2,320 in the early American session as US yields shot higher after the data showed a significant increase in the US GDP price deflator in Q1. With safe-haven flows dominating the markets, however, XAU/USD reversed its direction and rose above $2,340.
XRP extends its decline, crypto experts comment on Ripple stablecoin and benefits for XRP Ledger
Ripple extends decline to $0.52 on Thursday, wipes out weekly gains. Crypto expert asks Ripple CTO how the stablecoin will benefit the XRP Ledger and native token XRP.
After the US close, it’s the Tokyo CPI
After the US close, it’s the Tokyo CPI, a reliable indicator of the national number and then the BoJ policy announcement. Tokyo CPI ex food and energy in Japan was a rise to 2.90% in March from 2.50%.