USD/CNH fails to cheer China stimulus above 7.1700 amid US hardships for chipmakers, pre-CPI lull

• USD/CNH struggles to defend six-day uptrend despite bouncing off intraday low.
• China’s local governments buy houses to aid real-estate developers.
• Fears from US-led hardships for Chinese chipmakers, covid woes join hawkish Fed bets to favor buyers.
• PBOC versus Fed divergence keeps upside bias intact, US inflation will be the key for fresh impulse.

USD/CNH picks up bids to refresh intraday high around 7.1800 but posts mild gains amid the cautious markets ahead of the key US Consumer Price Index (CPI) data on Thursday. In addition to the pre-data anxiety, mixed catalysts surrounding China also challenge the offshore Chinese yuan (CNH) pair.

Biden administration announced tougher rules for doing business with China during Wednesday’s announcement. “The Biden administration’s new restrictions on doing business with China are sending shock waves through the global semiconductor industry, with chip-equipment makers girding for perhaps the most painful fallout,” stated Bloomberg after the release.

On the same line, US Treasury Secretary Janet Yellen said, per Reuters, that the global economy was facing "significant headwinds" and the United States was working to shore up its supply chains and guard against "geopolitical coercion" by Russia, China and others.

Elsewhere, Federal Reserve Governor Michelle Bowman said that if high inflation does not start to wane she will continue to support aggressive rate rises aimed at taming price pressures, reported Reuters. The Fed policymaker’s comments were in agreement with the latest Federal Open Market Committee (FOMC) Meeting Minutes which mentioned that the policymakers are concerned about inflation and fear doing too little.

Further fueling the USD/CNH prices could be the CME’s FedWatch Tool prints a nearly 85% chance of the Fed’s 75 bps rate hike in November while the US inflation expectations, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, retreated from the recent one-week highs.

Additionally, recently announced covid-led lockdowns in Shanghai and Hong Kong’s determination to keep virus-linked restrictions in place also favor the pair buyers.

On the contrary, Chinese media chatters suggesting the government’s plan to buy houses as a part of the stimulus seemed to have challenged the USD/CNH bulls of late. Further, the previously softer US Treasury yields and comments from US Treasury Secretary Yellen suggesting a liquidity crunch in the Treasury market also act as a negative for the pair.

Looking forward, USD/CNH may portray a sideways to positive move ahead of the US CPI, expected to ease to 8.1% YoY versus 8.3% prior. However, the more important CPI ex Food & Energy is likely to increase to 6.5% YoY from 6.3% prior and can favor more upside considering the recession woes.

Also read: US September CPI Preview: Monthly core inflation is the figure to watch

Technical analysis

Wednesday’s Doji and multiple failures to provide a daily closing beyond 7.1800 teases USD/CNH sellers.