USD/CNH renews two-month high above 6.9700 on PBOC inaction, US debt ceiling talks eyed

• USD/CNH seesaws around the highest levels in nine weeks, prods four-day uptrend.
• US Dollar struggles to defend the biggest weekly gain since September 2022 as US policymakers appear hopeful of avoiding default.
• PBOC keeps one-year MLF rate unchanged at 2.75%.
• US debt ceiling talks, China data dump will be crucial to watch for clear directions.

USD/CNH grinds near the multi-day top as bulls seek fresh clues to extend the latest run-up past 6.9700 during early Monday. In doing so, the offshore Chinese Yuan (CNH) pair justifies the market’s latest consolidation ahead of the key data/events.

People's Bank of China (PBOC) keeps the one-year Medium-term Lending Facility (MLF) rates unchanged at 2.75%, per the latest update. The news joins the PBOC’s highest daily fix since March 10 to propel the USD/CNH price.

However, risk appetite improves a bit during early Monday as US President Joe Biden said during the weekend that he expects to meet with Congressional leaders Tuesday for talks on a plan to raise the nation's debt limit and avoid a catastrophic default. Also taming the risk-off mood could be the comments from US Deputy Treasury Secretary Wally Adeyemo while speaking at the CNN interview as he said, “The congressional staff has been "constructive," as the two sides seek a deal to avert a possible first-ever US default on June 1.”

Elsewhere, fears that the US-China tussles can keep growing amid the Dragon nation’s dislike for Washington’s ties with Taiwan weighs on the mood. Further, a divergence between the hawkish Fed bias and the dovish PBOC moves also underpins the USD/CNH upside. Furthermore, the G7 nations’ readiness to announce more sanctions on Russia keeps the pessimists on the table and propels the offshore Yuan pair’s prices.

While portraying the mood, S&P500 Futures struggled during the third day of losses near 4,135 whereas the US 10-year and two-year Treasury bond yields remain sidelined around 3.46% and 3.98 respectively, after rising the most in three days on Friday.

It’s worth noting, however, that the US Dollar Index (DXY) resists stepping back after rising the most since late 2022 in the last week amid geopolitical and Fed concerns, which in turn keeps the USD/CNH bulls hopeful ahead of Tuesday’s key debt ceiling talks. That said, Fed Governor Philip Jefferson and St. Louis Fed President James Bullard defend the US central bank’s current monetary policy while citing higher inflation as a major challenge. On the same line, Fed Governor Michelle Bowman said Friday, “Policy rate will need to remain sufficiently restrictive for some time.”

Technical analysis

Despite the latest inaction, mainly due to the overbought RSI (14) line, the USD/CNH pair’s daily closing beyond the 200-DMA, around 6.9330 by the press time, keeps buyers hopeful.