USD/CNH bears attack 32-month low with eyes on PBOC vs. Fed story

• USD/CNH drops for the sixth consecutive day, stays pressured around intraday low.
• PBOC keeps pumping the markets, hopes of economic recovery battles IMF comments.
• Sino-American tussles, Russia-Ukraine drama also try to stop the bears.
• Second-tier US housing, trade numbers may entertain trades but Fed Chair Powell’s speech is the key.

USD/CNH cheers US dollar pullback to print a six-day downtrend around $6.3280 during early Wednesday.

In doing so, the Chinese currency (CNH) pair justifies the economic recovery hopes conveyed by the ex-People’s Bank of China (PBOC) official while paying a little heed to the central bank’s heavy liquidity injection.

A former member of People’s Bank of China’s (PBOC) monetary policy committee Yu Yongding said, “China's economy can grow 5.5% in 2022, and policymakers could set a higher economic growth target as long as inflation and systemic financial risks are under control.”

His comments were in contrast to the International Monetary Fund’s (IMF) downbeat economic forecasts. “We project global growth this year at 4.4%, 0.5 percentage point lower than previously forecast, mainly because of downgrades for the United States and China,” said No.2 official Gita Gopinath per Reuters.

It should be noted that the PBOC has recently cut benchmark rates and propelled ample liquidity into the markets to defend against the Fed’s rate hikes. The Chinese central bank injected 100 billion yuan on a net basis at the latest.

Elsewhere, geopolitical concerns relating to Russia’s readiness to attack Ukraine and the America COMPETES Act weigh on the market sentiment and should have helped the US Treasury yields. However, pre-Fed anxiety stops the US bond sellers from retaking controls after five consecutive days of absence.

Moving on, the Fed’s readiness to scale back easy money contrasts the PBOC’s mammoth liquidity infection and hence signals the USD/CNH rebound if the US Fed policymakers meet the hawkish expectations.

Read: Federal Reserve Interest Rate Decision Preview: Inflation, Omicron and equities

Technical analysis

An eight-month-old descending support line near $6.3238 restricts immediate USD/CNH downside amid oversold RSI conditions.