USD/CNH extends pullback from eight-month high towards 7.2500 on upbeat China PMI, PBoC moves

• USD/CNH remains pressured around intraday low, stretches pullback from the highest level since November 2022.
• China Caixin Manufacturing PMI came in better than forecast to 50.5 in June.
• PBoC announced a surprise easing in USD/CNH fix after fueling it in the last few days.
• Mixed concerns about US-China talks, softer US inflation clues, spending also prod offshore Yuan traders.

USD/CNH prints the biggest daily loss in a week, so far, with its quick slide to 7.2450 after better-than-expected China activity data. However, the mixed concerns about the US-China ties and the People’s Bank of China’s (PBoC) latest moves prod the offshore Chinese Yuan (CNH) pair early Monday.

That said, China’s Caixin Manufacturing PMI eased to 50.5 for June, from 50.9 prior, but came in above forecasts of 50.2.

On the other hand, the PBoC set the onshore Chinese Yuan (USD/CNY) rate at 7.2157 on Monday, versus the previous fix of 7.2258 and market expectations of 7.2464. It's worth noting that the USD/CNY closed near 7.2510 the previous day. With this, the Chinese central bank's onshore Yuan (CNY) fix retreats from the yearly top marked the previous day.

Elsewhere, mixed reactions to recently confirmed US Treasury Secretary Janet Yellen’s China visit during July 06-09 period test the USD/CNH traders. While the news appears positive for the sentiment on the front, the details seem less impressive as US Treasury Secretary Yellen is likely to flag concerns about human rights abuses against the Uyghur Muslim minority, China's recent move to ban sales of Micron Technology memory chips, and moves by China against foreign due diligence and consulting firms, per Reuters.

It’s worth noting that the USD/CNH reversed from the multi-month high the previous day after the Federal Reserve’s (Fed) preferred inflation gauge, namely US Personal Consumption Expenditure (PCE) Price Index, for May, came in at 0.3% MoM and 4.6% YoY versus market expectations of reprinting the 0.4% and 4.7% figures for monthly and yearly prior readings. With this, the key inflation numbers marked the smallest yearly gain in six months.

On the same line, the Personal Consumption Expenditure (PCE) Price for Q1 2023 eased to 4.1% QoQ from 4.2% expected and prior whereas the Pending Home Sales slumped to -2.7% MoM for May compared to 0.2% expected and -0.4% prior (revised).

The cooling of spending and easy inflation challenge Fed Chair Jerome Powell’s support for “two more rate hikes in 2023” and prod the USD/CNH buyers.

Amid these plays, S&P500 Futures fail to trace the upbeat Wall Street performance whereas the US Treasury bond yields struggle of late.

Moving forward, the US ISM Manufacturing PMI for June will join the risk catalysts to direct intraday moves but major attention will be given to Fed Minutes and US jobs report for a clear guide.

Technical analysis

Although Friday’s Doji candlestick on the daily chart, at a multi-month high, joins the overbought RSI (14) line to tease the USD/CNH bears, a fortnight-old support line, near 7.2530 at the latest, challenges the sellers.