USD/CNH snaps two-day losing streak near 7.2900 despite PBoC’s defense of Yuan, Fed Powell’s speech eyed

• USD/CNH clings to mild gains during the first positive day in three.
• US Dollar benefit from mostly upbeat data, hawkish Fed signals and recovery in yields.
• PBoC aims to restrict offshore Yuan supplies via Bond Connect scheme.
• Fed Chair Jerome Powell needs to reject rate cut bias, signal one more rate hike to defend Greenback bulls.

USD/CNH seesaws around the intraday top near 7.2870 as it snaps a two-day losing streak early Friday. In doing so, the offshore Chinese Yuan (CNH) struggles to justify the People’s Bank of China’s (PBoC) efforts to defend the domestic currency via bond market moves amid the broad US Dollar strength ahead of Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium.

Reuters cites two sources with direct knowledge of the matter while reporting the Chinese central bank’s push to the domestic banks to reduce their outward investments through the Bond Connect scheme. One of the sources said, "Restricting Yuan from flowing to offshore market could tighten offshore yuan liquidity to raise the financing cost,” per Reuters. It should be noted that the PBoC actively defends the Yuan with the day-to-day money market operations as it rose to the yearly high last week.

On a different page, the anxiety before Fed Chair Powell’s speech joins the recently fading optimism about the US-China ties, which in turn propels the USD/CNH prices. That said, the Chinese Commerce Ministry said in a statement on Thursday, “China will state its stance on economic and trade matters of concern,” while adding that they will push financial institutions to expand credit to businesses. China’s Commerce Ministry also called on the US to cancel potential arms sales to Taiwan, which in turn flagged fears of geopolitical tension when US Commerce Secretary Gina Raimondo visits Beijing next week.

Elsewhere, upbeat details of the US Durable Goods Orders for July and firmer mid-tier activity data, as well as employment clues, allow the Fed policymakers to remain hawkish and put a floor under the US Dollar Index after it reversed from 11 weeks on Wednesday. It’s worth noting that the US Dollar Index (DXY) rose to a fresh high since June 07 before a few minutes, after jumping the most in a month to renew the multi-day peak the previous day.

Amid these plays, the US 10-year Treasury bond yields extend the previous day’s rebound from the weekly low and favor the US Dollar buyers. However, mildly positive S&P500 Futures prod the Greenback and the USD/CNH price.

Looking forward, mixed headlines surrounding China and anxiety ahead of the top events may restrict the immediate USD/CNH moves. That said, Fed Chair Powell’s hawkish nature keeps the pair buyers hopeful unless he signals the rate cuts next year.

Technical analysis

Although multiple levels marked during late June and early July put a floor under the USD/CNH price near 7.2700, the offshore Chinese Yuan (CNH) pair needs to provide a clear break of the one-week-old descending resistance line, around 7.2870 by the press time, to convince the bulls.