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USD/CNH Falls To a Three-Week Low Near 7.2400 On PBoC RRR Cut, Positive China PMI, And Attention To US NFP
USD/CNH falls to a new multi-day low due to hawkish PBoC action and positive China data. The PBoC will reduce RRR by 2%, and the China Caixin Manufacturing PMI improved in August. Recent US data and pre-NFP consolidation permit the US dollar to rise despite impending Fed policy reversal concerns. Strong employment data from the United States is required to prevent the Yuan from attaining multi-day highs.
USD/CNH remains under pressure at the lowest level in three weeks, after falling the most in two weeks the day before, as offshore Chinese Yuan (CNH) buyers applaud August China activity data and the People's Bank of China's (PBOC) moves. In spite of this, the currency pair refreshed the multi-day low to 7.2390 before a few minutes while remaining depressed at 7.2540.
August's Caixin Manufacturing PMI rose to 51.0, compared to 49.3 market expectations and 49.0 previous readings. Thursday, China's official NBS Manufacturing PMI for August rose to 49.7 from 49.4 expected and 49.3 previous readings, while the Non-Manufacturing PMI came in at 51.0 from 51.5 previous readings and 51.1 market expectations.
China's central bank, the People's Bank of China (PBoC), announced earlier in the day that, beginning September 15, it will reduce the foreign exchange reserve requirement ratio from 6.0% to 4%.
According to Reuters, a number of Chinese institutions slashed interest rates on Yuan deposits, citing a willingness to alleviate the impact of falling mortgage rates. ICBC, China Industrial Bank, Agricultural Bank of China, and Bank of China (BoC) garnered the most interest.
As a result, the USD/CNH pair remains weak amidst expectations that China will be able to prevent the economy from falling back into COVID-induced difficulties.
On the other hand, the US Dollar Index (DXY) erodes the previous day's corrective rebound off the 200-day simple moving average (SMA) as market participants appear divided over the next move of the US Federal Reserve (Fed) in light of the previous day's mixed data and earlier bearish signals.
Thursday, the Fed's preferred inflation indicator, the US Core Personal Consumption Expenditure (PCE) Price Index for August, matched market expectations of 4.2% YoY and 0.2% MoM, compared to 4.1% YoY and 0.2% MoM in the previous month. In addition, Initial Jobless Claims decreased to 228K from 232K previously (revised) compared to market expectations of 235K, while the Chicago Purchasing Managers' Index rose to 48.7 for August compared to 44.1 anticipated and 42.7 previous readings. In addition, Personal Spending increased to 0.8% in July, surpassing the 0.6% expected and previous readings, while Personal Income decreased to 0.2% for the same month, below the 0.3% market forecast and previous readings.
Notably, the US Dollar rallied the most in a week following the release of the data, particularly when Atlanta Fed President Raphael Bostic defended the US central bank's stance on maintaining high interest rates.
US 10-year and 2-year Treasury bond yields remain subdued around the lowest level in three weeks, while US stock futures decline following a mixed Wall Street close, thereby reflecting the prevailing sentiment.
Ahead of the U.S. employment report, USD/CNH bears may take a respite due to the mixed sentiment and pre-data anxiety. Nonfarm Payrolls (NFP) estimates are predicted to be 170K, compared to the previously optimistic results of JOLTS Job Openings, ADP Employment Change, and higher figures of US Continuing Jobless Claims. In addition, the three-month average of the US NFP falls by half to 218K compared to a year ago. As a consequence, the overall outlook for the US employment numbers appears negative, and the USD/CNH can only be protected by an exceptionally strong outcome.
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