USD/CNH jumps to 14-year high above 7.2200 as PBOC tries to tame recession woes

• USD/CNH takes the bids to jump to the highest levels since 2008.
• PBOC’s successive increase in USD/CNY fix, fears of China’s economic slowdown favor pair buyers.
• Firmer US data, mixed Fedspeak and upbeat yields underpin the US dollar’s demand.
• Fed Chair Powell’s speech eyed for fresh impulse, buyers are likely to keep the reins.

USD/CNH is on the fire as it rallies to 7.2282 while printing the 14-year high during Wednesday’s Asian session. The latest moves from the People’s Bank of China (PBOC), global fears surrounding the dragon nation’s economic health and the technical breakout contributed to the offshore Chinese yuan’s (CNH) latest run-up.

The PBOC is likely to maintain liquidity injections via reverse repo operations to keep month-end liquidity reasonably ample and stabilize money market interest rates, the China Securities Journal reported, per Reuters. The PBOC has injected net liquidity over the past seven trading days and the net injection of CNY173 billion on Tuesday was the highest since the end of February, the newspaper said. With this, the fears of PBOC intervention to defend the CNH gain major attention and propel the USD/CNH pair.

On Tuesday, the World Bank’s (WB) downbeat economic forecasts for China and chatters that the dragon nation called key market players to defend the equities also printed vulnerabilities in the economy of the world’s biggest commodity user. That said, the World Bank said China was projected to grow 2.8% this year, a significant deceleration from its previous forecast of 5.0%, reported Reuters.

Elsewhere, fears emanating from the European energy crisis, upbeat US data and mixed Fedspeak seem to underpin the USD/CNH upside. Recently, comments from White House economic adviser Brian Deese tried to tame the bears but could not as San Francisco Fed President Mary Daly raised fears of economic slowdown.

Against this backdrop, the S&P 500 Futures drop 0.30% intraday to poke the 21-month low marked the previous day while the US 10-year Treasury bond yields remain firmer at the highest levels since 2011, up two basis points (bps) near 3.98% at the latest. It’s worth noting that Wall Street closed mixed as traders remained unconvinced over the next step of major central bankers amid inflation woes.

Looking forward, a speech from Fed Chair Jerome Powell may entertain the pair buyers if he speaks about matters relating to the monetary policy.

Technical analysis

A clear upside break of the 7.1960-70 hurdle comprising the tops marked in 2019 and 2020 keeps the USD/CNH buyers hopeful of approaching the 61.8% Fibonacci retracement level of its 2005-14 downturn, near 7.4200.