USD/CNH snaps seven-day winning streak as China inflation, PBOC’s Yi favor sellers

• USD/CNH remains depressed while extending previous day’s pullback from fortnight high.
• China’s CPI offered positive surprise, PPI eased in September.
• PBOC’s Yi signals more room to adjust policy, hints at stimulus to support real economy.
• US consumer-centric data will be important as DXY remains downbeat.

USD/CNH drops back below 7.1700 as it snaps a seven-day uptrend during Friday’s Asian session. In doing so, the offshore Chinese yuan (CNH) pair stretches the previous day’s pullback from a two-week high even as the inflation numbers came in mixed. The reason could be linked to the comments from People’s Bank of China (PBOC) Governor Yi Gang, as well as the broad US dollar weakness.

That said, China’s headline Consumer Price Index (CPI) matched upbeat market forecasts by rising 2.8% in September while the Producer Price Index (PPI) fell short of meeting expectations during the stated month, down to 0.9% versus 1.0% forecasts and 2.3% prior.

Earlier in the day, People’s Bank of China (PBOC) Governor Yi Gang mentioned, “The PBOC has room to adjust policy given the inflation rate in China is well within target.” The policymaker also signaled multiple moves, mostly suggesting more stimulus for infrastructure and housing, to provide stronger support for the real economy.

Although the USD/CNH bears are in full steam, the latest coronavirus wave in Hong Kong, Shanghai and Beijing join the broad push for higher rates to challenge the optimism in China.

On Thursday, a third consecutively softer US Consumer Price Index (CPI) jostled with the 40-year high Core CPI and drowned the US Dollar Index (DXY) despite hawkish Fed bets. Talking about the data, the US CPI rose to 8.2% versus 8.1% market forecasts but eased as compared to the 8.3% prior. The CPI ex Food & Energy, mostly known as the Core CPI, jumped to 6.6% while crossing the 6.5% expectations and 6.3% previous readings.

Amid these plays, the US Treasury yields dropped three basis points (bps) to 3.92% whereas the S&P 500 Futures and stocks in the Asia-Pacific region print gains at the latest.

Moving on, headlines surrounding the PBOC’s next move and covid will be important for the USD/CNH pair traders to watch for fresh impulse ahead of the key US Retail Sales for September, expected 0.2% MoM versus 0.3% prior. Also important will be the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October.

Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Technical analysis

Thursday’s Gravestone Doji on the daily chart joins nearly overbought RSI (14) to keep bears hopeful.