USD/CNH stays firmer past 6.9200 at two-year high on downbeat China concerns

• USD/CNH takes the bids to refresh intraday top, stays around multi-day high.
• Pessimism surrounding Chinese banks, Sino-American ties propel latest moves.
• Fed vs. PBOC divergence underpins the broad bullish bias.
• US Consumer Confidence, risk catalysts and Fedspeak are important ahead of NFP.

USD/CNH prints a three-day uptrend as bulls flirt with the 6.9200 threshold while keeping reins around the highest levels since August 2020. That said, the offshore Chinese yuan (CNH) pair’s latest run-up could be linked to the market’s risk-off mood, as well as concerns surrounding Beijing.

Politico came out with the news suggesting the Biden administration to ask congress to approve a $1.1 billion arms sale to Taiwan, which in turn appears to have triggered the latest run-up. Before that, the movement of the US vessels in the Taiwan Strait and American diplomats’ visits to Taipei teased China.

It’s worth noting that Financial Times (FT) raised concerns over the mounting pressure on Chinese banks to also add to the market’s fears. “Chinese residential property owners are rushing to pay off their mortgages early, heaping pressure on commercial banks that were already struggling to identify attractive lending opportunities,” said the news.

That said, the divergence between the monetary policies of the People’s Bank of China (PBOC) and the US Federal Reserve (Fed) appear to be the main catalyst for the USD/CNH bull run. Recently, Fed Chair Jerome Powell led the policy hawks towards ignoring the economic slowdown fears in a mission to tame inflation, which in turn propelled the US Dollar Index (DXY) to a fresh 19-year high, before stepping back to 108.80, around 108.90 at the latest.

On Monday, Dallas Fed Manufacturing Business Index improved to -12.9 versus -20.2 expected and -22.6 prior. It should be noted that Minneapolis Federal Reserve Bank President Neel Kashkari stated that people now understand how serious we are about getting inflation back to 2%.

Amid these plays, the US 10-year Treasury yields retreat to 3.10% following the two-day uptrend to refresh the monthly high. With this, the S&P 500 Futures pares mild losses while tracking Wall Street.

While the risk-off mood and the firmer DXY could keep the USD/CNH buyers hopeful, today’s US Consumer Confidence for August and comments from Fed speakers could entertain intraday traders. However, major attention will be given to Friday’s US jobs report as Fed Chair Powell raised concerns over economic slowdown and job market stress in his Jackson Hole speech.

Technical analysis

A clear upside break of the ascending resistance line from April 2021, near 6.9050 by the press time, directs USD/CNH buyers towards June 2019 peak surrounding 6.9630.