USD/CNH slides to 7.1500 as PBoC defends Yuan, China stimulus loom

• USD/CNH drops to more than one-week low, stays pressured near intraday bottom of late.
• PBoC keeps defending Yuan with heavy OMOs, pours cold water on expectations of witnessing strong USD/CNY fix.
• Comparatively better US PMIs put  floor under US Dollar price but pre-Fed positioning allow offshore Chinese Yuan to remain firmer.
• US CB Consumer Confidence eyed ahead of Wednesday’s FOMC.

USD/CNH stands on the slippery ground as it drops to the lowest levels in seven days to around 7.1500 during early Tuesday, close to 7.1600 by the press time. In doing so, the offshore Chinese Yuan (CNH) justifies the People’s Bank of China’s (PBoC) efforts to defend the domestic currency, as well as cheer the talks about more stimulus from the dragon nation.

The PBoC marked another disappointment for the USD/CNY forecasters by fixing the reference rate at 7.1406 versus 7.1451 prior and 7.1860 market forecasts. It’s worth noting that the USD/CNY closed near 7.1882 the previous day. While defending the USD/CNY fix, the Chinese central bank announced a 3-month bills swap worth five billion Yuan while marking a net 29 billion Yuan injection by the Open Market Operations (OMOs).

Elsewhere, the Chinese media conveyed details of the Communist Party's Politburo meeting on Monday that cited new difficulties and challenges for the economy while also showing the policymakers’ readiness for prudent monetary and fiscal policies. It’s worth observing, however, that the policymakers pledged measures to step up support for the economy amid a flagging post-COVID recovery, reported Reuters.

On the same line, China state planner National Development and Reform Commission (NDRC) issued a notice to promote the high-quality development of private investment. That said, NDRC also pledged encouragement of participation in some projects of transport, water and clean energy, as well as in new infrastructure and modern agriculture.

Amid these plays, stocks in China rally but the US stock futures print mild losses while the Treasury bond yields dribble and trigger the US Dollar’s retreat.

That said, the US Dollar Index (DXY) refreshed a two-week high near 101.40 during a five-day uptrend, mildly bid near 101.45 by the press time, amid comparatively better PMI data and upbeat yields. That said, the first readings of the US S&P Global Manufacturing PMI for July improved to 49.0 from 46.3 prior and 46.4 market forecasts while the Services PMI eased to 52.4 versus 54.0 expected and 54.4 previous readings. With this, the Composite PMI edged lower to 52.0 from 53.2 prior and 53.1 market forecasts. However, Chicago Fed National Activity Index for June slid to -0.32 from -0.28 prior (revised) and 0.03 market forecasts.

Moving on, China stimulus news and the PBoC efforts may keep weighing on the USD/CNH price but the US CB Consumer Confidence for July, expected at 112.1 versus 109.70 prior, and Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting announcements are crucial to watch for clear directions.

Technical analysis

A convergence of the five-week-old ascending trend line joins the 50-DMA to restrict the immediate USD/CNH downside near 7.1600.