USD/CNH snaps two-day downtrend near 6.7950 amid concerns over PBOC, Taiwan

• USD/CNH picks up bids to mark the first daily gains in three.
• Doubt’s over PBOC’s capacity raise concern about 1.5 trillion yuan stimulus.
• US braces for stronger trade ties with Taiwan but doesn’t undermine the “One China” policy.
• Yields decline as Fed Minutes signaled easing hawkish bias among policymakers.

USD/CNH prints the first daily gains in three around mid-6.7900s as the offshore Chinese yuan (CNH) eases amid mixed concerns during Thursday’s Asian session. Among them, headlines surrounding the People’s Bank of China (PBOC) are the important ones.

“PBOC has limited room to ease due to concerns over inflation and capital flight,” Reuters reported late Wednesday, citing PBOC insiders. The news also mentioned that the economic recovery looking increasingly shaky.

Elsewhere, China Securities News mentioned, “China may issue 1.5 trillion yuan in additional debt as part of an investment push.”

The latest comments from the US Trade Representative’s office stating, “Early this autumn, the US and Taiwan will begin formal negotiations on a trade initiative,” seem to renew the fears of the US-China tussle and favor the USD/CNH buyers.

Furthermore, the statements from a top US diplomat for East Asia Kritenbrink also add to the woes of the Sino-American tension over Taiwan. The diplomat said, “The US is committed to maintaining peace and stability across the Taiwan Strait.”

On the other hand, the Fed Minutes probed the US dollar bulls the previous day as it said, per Reuters, that officials were ready to slow the pace of interest rate hikes in tandem with signals of a slowdown in inflation. However, firmer US Retail Sales for July seemed to have kept the US dollar bulls hopeful.

Against this backdrop, the US 10-year Treasury yields retreat from the weekly top surrounding 2.90% to 2.88% down two basis points (bp) by the press time. Further, the S&P 500 Futures print mild losses after reversing from a four-month high the previous day.

Moving on, USD/CNH pair traders should watch for risk catalysts for fresh directions ahead of the weekly prints of the US Initial Jobless Claims and Philadelphia Fed Manufacturing Survey for August.

Technical analysis

A failure to stay beyond the two-month-old resistance line, around 6.8000 by the press time, signals the USD/CNH pair’s declines towards the 21-DMA support of 6.7633.