USD/CNH struggles to cheer US Dollar weakness at monthly low past 7.1500 on mixed China news

• USD/CNH seesaws at the lowest levels in a month, bounces off intraday low of late.
• Chatters about China’s need for more stimulus jostle with downbeat IMF remarks to prod Yuan buyers.
• Comments from Fed’s Waller also prod USD/CNH bears amid fears of Fed policy pivot.
• US consumer-centric data, risk catalysts eyed for clear directions.

USD/CNH bears lick their wounds at the lowest level in a month as the offshore Chinese Yuan pair rebounds from the monthly low to 1.1470 early Friday, after initially refreshing the multi-day bottom. In doing so, the pair justifies the market’s mixed concerns about Beijing even as the dovish Federal Reserve (Fed) bias weighs on the quote.

Earlier in the day, Nikkei Asia quoted China think tank Chinese Academy of Social Sciences (CASS) while citing the need for heavy stimulus, of around $182 billion, to regain the economic transition.

On the same line were statements from the International Monetary Fund (IMF) as it said late Thursday that China's economy is slowing due to weaker private investment, slowing exports and reduced domestic demand after a strong performance in the first quarter as the economy reopened from COVID-19 lockdowns.

Elsewhere, China’s top diplomat Wang Yi, also the Foreign Minister, cited improved relations with Australia and showed economic optimism.

Furthermore, People’s Bank of China (PBoC) Deputy Governor Guoqiang Liu said that China has not seen deflation and no deflationary risks in the second half of 2023 (H2 2023).

Apart from the mixed macros surrounding China, hawkish comments from Federal Reserve Governor Christopher Waller also prod the USD/CNH bears, especially amid downbeat sentiment.

“Fed likely to need two more 25 basis point rate hikes this year,” said Fed’s Waller. The policymaker also ruled out concerns about the Fed rate peak while stating the need for two more downbeat inflation numbers in the prepared remarks for delivery before a gathering held by The Money Marketeers of New York University shared by Reuters.

However, downbeat US inflation clues keep flagging fears of the Fed’s policy pivot after July’s already priced-in rate hike and exert downside pressure on the US Dollar Index. That said, US Producer Price Index (PPI) came in as 0.1% YoY for June, versus 0.4% expected and 0.9% prior while the PPI ex Food & Energy, also known as the Core PPI, eased to 2.4% YoY from 2.8% previous reading and 2.6% market forecasts. Earlier in the week, the US Consumer Price Index (CPI) registered a 3.0% YoY figure for June versus 3.1% market forecasts and 4.0% reported for May. Further details suggest that the CPI ex Food & Energy, also known as the Core CPI, softened to 4.8% yearly for the said month compared to analysts’ estimations of 5.0% and 5.3% previous readings.

Against this backdrop, the S&P500 Futures retreat from the yearly high, down 0.16% intraday at the latest, whereas the US 10-year and two-year Treasury bond yields print mild gains around 3.78% and 4.65% by the press time.

Looking ahead, China headlines will entertain the USD/CNH traders ahead of the preliminary readings of July’s Michigan Consumer Sentiment Index, as well as the Five-Year Consumer Inflation Expectations.

Technical analysis

Despite the latest inaction, a daily closing beneath the three-month-old rising support line, now immediate resistance near 7.1530, keeps the USD/CNH sellers hopeful.