USD/CNH: Lack of optimism in China favor bulls above 6.8800 despite softer US Dollar
- USD/CNH picks up bids to reverse early-day losses, grinds higher after two-day uptrend.
- Fears of shrink in China’s banking sector, downbeat data weigh on offshore Chinese Yuan.
- Market sentiment remains firmer amid easing fears of bank fallouts elsewhere.
- US CB Consumer Confidence eyed ahead of key China PMI, US inflation clues.
USD/CNH reverses the initial losses while marching towards 6.8850, around 6.8825 by the press time, during early Tuesday. In doing so, the offshore Chinese Yuan (CNH) fails to portray the broad US Dollar gains amid doubts surrounding China’s economic growth and banking sector’s strength, not to forget downbeat China data.
Earlier in the day, the Financial Times (FT) mentioned that China has significantly expanded its bailout lending as its Belt and Road Initiative blows up following a series of debt write-offs, scandal-ridden projects and allegations of corruption. The FT previously quoted global shipping giant Maersk to say, “China’s economic rebound weaker than expected.” On the same line is the news from Bloomberg quoting Chinese official Jin Zhongxia who said that China's creditors are hesitant to offer relief. Furthermore, global rating giant Moody's also said China's shadow banking sector continues to shrink.
On Monday, Chinese Industrial Profits marked -22.9% YTD figures for February versus the previous readings of -4.0%.
It should be noted, however, that China’s National Petroleum Corporation’s Economics and Technology Research Institute (ETRI) anticipates record energy import by the dragon nation while citing economic rebound.
On the contrary, global policymakers manage to propel the risk-on mood via stretched emergency credit lines to troubled banks and deposit insurance schemes. Recently adding strength to the risk-on mood were comments from the central bank officials pushing back the banking crisis concerns and the Silicon Valley Bank (SVB) deal.
Amid these plays, the US 10-year and two-year Treasury yields grind lower around 3.51% and 3.92% by the press time, paring the week-start rebound after witnessing a three-week downtrend. That said, the US Dollar Index (DXY) drops for the second consecutive day to 102.65, down 0.21% intraday by the press time. It should be noted that the stocks in the Asia-Pacific zone remain firmer while S&P 500 Futures print mild gains at the latest.
It’s worth observing that the risk-native headlines surrounding China and Russia put a floor under the USD/CNH prices. That said, talks about China’s failure to keep the pace of growth promised, as well as Russia’s alleged readiness to use nuclear weapons against Ukraine. On the same line are the latest comments from North Korean Leader Kim Jong Un who recently stated, per KCNA news, “(They) should be fully ready to use nuclear weapons at any time.” Recently, Russia was said to have test-fired an anti-ship missile in the Sea of Japan.
Moving on, the US Conference Board’s (CB) Consumer Confidence for March, as well as the second-tier housing and activity data, can direct intraday moves of the USD/CNH pair. However, major attention will be given to the US inflation clues and China’s official PMI data.
Technical analysis
A convergence of the 21-day and 50-day Exponential Moving Average (EMA) restricts short-term USD/CNH upside near 6.8850-70.