USD/CNH fails to test 6.8000 on lower-than-projected China inflation report

• USD/CNH has sensed selling pressure and dropped from around 6.8000 as China’s monthly CPI shows deflation.
• Deflation in China’s monthly CPI and PPI might compel authorities to keep the policy expansionary.
• The USD Index is aiming to reclaim the critical resistance of 103.00 as the market mood is quite risk-averse.

The USD/CNH pair has dropped firmly after failing to test the round-level resistance of 6.8000 in the Asian session. The asset has dropped after the release of China’s inflation (Jan) data for January, which remained lower than expected even after the removal of restrictions on the movement of men, materials, and machines by the Chinese administration while rolling back pandemic curbs.

The annual inflation data has landed at 2.1%, between of the consensus of 2.2% and the prior release of 1.8%. The monthly inflation figure has shown a deflation of 0.8% against an expansion in the inflationary pressures by 0.7%.

Meanwhile, China’s Producer Price Index (PPI) has shown a deflation of 0.8% higher than the projections of 0.5% and the former release of 0.7%. It indicates that producers are heavily cutting prices of goods and services at factory gates. This shows an expression of weak demand by the households.

This has bolstered the case for more expansionary policy by the Chinese administration and the People’s Bank of China (PBoC), especially in times when the administration is entirely focused on spurting economic growth.

Meanwhile, the US Dollar Index (DXY) is aiming to reclaim the critical resistance of 103.00 as the market mood is quite risk-averse. The risk appetite of the market participants has extremely faded ahead of the release of the United States Consumer Price Index (CPI) data, which is scheduled for Tuesday. The headline CPI is expected to drop to 5.8% from the former release of 6.5%. Investors should be ready for a surprise upside from the inflationary figures after upbeat US Nonfarm Payrolls (NFP) January.