USD/CNH drops below 6.9500 on higher-than-anticipated China Inflation

• USD/CNH has surrendered the critical support of 6.9500 as China's Inflation has landed at 1.6% vs. 1.0% as expected.
• Dovish commentary is expected from the PBOC ahead as China’s inflation is in a declining stage.
• A significant improvement in investors’ risk appetite has weighed on the US Dollar index.

The USD/CNH pair has delivered a downside break of the consolidation formed in a narrow range of around 6.9600 in the Asian session. The downside pressure in the major is a collective effort of the higher-than-projected release of China’s inflation data and improvement in investors’ risk appetite.

China’s annual Consumer Price Index (CPI) has landed at 1.6%, higher than the projections of 1.0% but lower than the prior release of 2.1%. While the monthly figure is showing a contraction of 0.2%. The annual Producer Price Index (PPI) data has contracted by 1.3% while the street was expected a contraction by 1.5%. Economists at TD Securities were expecting that the annual inflation data could decline to 1.5% from the former release of 2.1%.

Though the release is higher than expectations but is in a declining stage and may force the People’s Bank of China (PBOC) to come forward with fresh stimulus packages to infuse pace in the extent of economic activities.

Meanwhile, easing Covid-19 lockdown measures are going to accelerate economic activities in China. Earlier, restrictions on the movement of men, materials, and machines by the administration to curtail infections dampened operations. Now, the reopening of the economy after households' protest will support economic prospects.

The US Dollar Index (DXY) has slipped sharply to near 104.56 as investors are expecting a slowdown in the interest rate hike by the Federal Reserve (Fed). Also, investors have shrugged off uncertainty over Fed’s interest rate peak guidance.