USDCNH rebound fades around 7.2300 as China defends zero-covid policy, Fedspeak appears mixed

• USDCNH licks its wounds after printing the biggest daily loss in decades.
• Fears of extended covid-led lockdowns, higher virus numbers propel USDCNH price.
• Hopes of more investment from China, mixed Fedspeak keep a tab on upside.

USDCNH grinds higher around the intraday top, making rounds to 7.2300 by the press time, as it pares the biggest daily loss in decades during Monday’s Asian session.

The offshore Chinese Yuan’s (CNH) latest losses could be linked to the covid fears. However, expectations of more private investment to defend the world’s second-largest economy and mixed concerns over the US Federal Reserve’s (Fed) next move seem to challenge the pair buyers of late.

Comments from China’s National Health Commission (NHC) officials turned down the previous hopes of witnessing easy covid control and propelled the USDCNH prices of late. The officials said, per Reuters, that China will persevere with its "dynamic-clearing" approach to COVID-19 cases as soon as they emerge.

“China reported 5,643 new COVID-19 infections on Nov. 6, of which 569 were symptomatic and 5,074 were asymptomatic, the National Health Commission said on Monday,” per Reuters. The news also stated, “That is compared with 4,610 new cases a day earlier – 588 symptomatic and 4,022 asymptomatic infections - which China counts separately.”

On the same line was China President Xi Jinping’s warning to Russian President Vladimir Putin over the usage of nuclear technology in the war. Furthermore, the news from the Wall Street Journal (WSJ) suggesting that a senior White House Official is involved in undisclosed talks with top Putin aides also tried to please the pair buyers.

Alternatively, Reuters quotes updates from the website of the National Development and Reform Commission (NDRC) as saying that private enterprises will be incentivized to invest in 102 major projects in areas such as transportation, water conservation and carbon reduction.

It should be noted that Friday’s mixed US jobs report, with a jump in the headlines Nonfarm Payrolls (NFP) and an increase in the Unemployment Rate, joined fears of policy pivot to weigh on the US dollar and triggered the market’s risk-on mood. Additionally, the hopes of easing China’s covid-led activity control offered extra strength to the risk-on mood the previous day. ''An unverified social media post last week, and a report authorities were working on plans to scrap a system that penalizes airlines for bringing virus cases into the country, boosted investor hopes that China’s pandemic policy may soon be loosened,'' Bloomberg reported. 

Amid these plays, the S&P 500 Futures retreat to 3,750, fading the previous day’s rebound from the lowest level in two weeks whereas the US Treasury yields remain sluggish around the multi-day highs printed the previous day.

Moving on, China’s trade numbers for October will act as an immediate catalyst but major attention will be given to the virus updates and inflation data from Beijing, as well as Washington. Above all, the monetary policy divergence between the US Federal Reserve (Fed) and the People’s Bank of China (PBOC) keeps the USDCNH bulls hopeful.

Technical analysis

A three-month-old ascending trend line restricts the short-term USDCNH downside near 7.1800.