USD/CNH: Yuan stays firmer past 7.3000 as China debt woes jostle with stimulus hopes, pullback in yields

• USD/CNH stays defensive while keeping the previous day’s retreat from nine-month high.
• China’s Evergrande files for Bankruptcy but policymakers show readiness for more stimulus to defend economy.
• Mostly upbeat US data, shift in Fed bias could prod Yuan buyers.
• Light calendar allows traders to better prepare for next week’s Jackson Hole symposium.

USD/CNH struggles to keep bears on the throne amid Friday’s sluggish trading, despite wading through the bullish bias by reversing from the yearly high the previous day. That said, the offshore Chinese Yuan (CNH) pares intraday losses, the second one in the row, to around 7.2900 by the press time.

That said, a pullback in the yields joins the Chinese policymakers’ readiness for more stimulus to defend the Yuan buyers even as looming fears of China's economic slowdown and firmer US data put a floor under the USD/CNH price.

Having jumped to the highest level since 2007, the US 10-year Treasury bond yields eased around five basis points (bps) in the last hour to 4.25% as market players brace for the next week’s top-tier central bankers’ speeches at the Jackson Hole Symposium amid a light calendar.

Elsewhere, the People’s Bank of China (PBOC) released its second-quarter monetary policy report and said it “will resolutely prevent over-adjustment risks of Yuan exchange rate.” The PBoC has been defending the Yuan for a long, despite higher market pricing and finally takes advantage of the recently softer yields to favor the USD/CNH bears.

Even so, China’s second-large realtor, as well as the world's most heavily indebted property developer, Evergrande filed for protection from creditors in a US bankruptcy court on Thursday, per Reuters, which in turn propelled the market’s fears. The same escalates woes surrounding the world’s second-largest economy, as well as the global economic transition, as it battles with the slowing economic recovery and fuels concerns about the financial health of China’s biggest realtor, namely Country Garden. Amid these fears, top-tier US banks like JP Morgan and Barclays have recently cut China growth forecasts.

On the other hand, firmer United States statistics and the hawkish Fed Minutes could be linked to a shift in the market’s dovish bias about the US central bank. Talking about the data, US Philadelphia Fed Manufacturing Survey marked the strongest print since April 2022, as well as the first positive outcome in a year, while rising to 12.0 for August from -13.5 prior and -10.0 expected. On the same line, the US Initial Jobless Claims also edged lower to 239K for the week ended on August 11 versus a revised up 250K prior and the market expectations of 240K. It should be noted that the four-week average of the Initial Jobless Claims and the weekly figures of the Continuing Claims for the period ended on August 04 edged higher. Earlier in the week, the US Industrial Production and Retail Sales for July marked surprising growth but the housing numbers were mixed.

On the other hand, the latest Fed Minutes showed that most policymakers preferred supporting the battle again the ‘sticky’ inflation, despite being divided on the imminent rate hike, which in turn challenges the market’s previous policy pivot concerns about the US central bank and favors the Greenback. Even so, the CME’s FedWatch Tool signals a nearly 86% chance of the Fed’s no rate hike in September and prods the US Dollar bulls, which in turn allows the Gold bears to take a breather.

Looking ahead, a light calendar may allow the traders to pare weekly moves while keeping eye on the risk catalysts for clear directions.

Technical analysis

A daily closing beneath a three-week-old rising support line, around 7.2620 by the press time, becomes necessary for the USD/CNH bears to retake control.