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USD/CNH Investors Assault 7.1700 On The Back Of Mixed China Data And Geopolitical Concerns
The USD/CNH gains bids, extending Friday's rebound from a one-month low. China's Q2 GDP declines to 0.8% QoQ, while Industrial Production and Retail Sales both decline in June. Mixed worries regarding China's relations with other countries stimulate market sentiment, allowing the US Dollar to nurse its wounds. US Retail Sales and risk catalysts are evaluated for directionality.
USD/CNH re-establishes its intraday high near 7.1720 after China fails to dispel the market's pessimism with its muddled data released early Monday. The US Dollar's corrective rebound amid bearish sentiment and the People's Bank of China's (PBOC) defence of the Medium-term Lending Facility (MLF) rates may also support the offshore Chinese Yuan (CNH) pair.
China's Gross Domestic Product (GDP) for the second quarter (Q2) of 2023 came in at 0.8% Quarter-over-Quarter (QoQ) versus 0.5% market forecasts and 2.2% previously, while the GDP Year-over-Year (YoY) figures rose past the previous readings of 4.5% to 6.3% versus analysts' predictions of 7.3%. Moreover, Industrial Production increased 4.4% year-over-year in June, compared to 2.7% expected and 3.5% previously, while Retail Sales declined to 3.1% from 12.7% previously and 3.3% market consensus. Notably, China's survey-based Jobless Rate for 24-year-olds in June reached a record high of 21.3%. In addition, the PBoC maintains the one-year MLF rate at 2.65%.
Elsewhere, the International Monetary Fund (IMF) cited concerns of short-term inflation indications as the reason for the US Dollar Index's rebound from the multi-month low, which allowed the USD/CNH to recover. The political fears encircling China, signalled by New Zealand Prime Minister (NZ) Chris Hipkins and US Treasury Secretary Janet Yellen, bolster the pair's corrective rebound.
In addition, according to Reuters, US climate envoy John Kerry arrived at the Beijing Hotel in the Chinese capital on Monday for discussions with his Chinese counterpart Xie Zhenhua. The policymaker's initial remarks were pessimistic as he suggested that China and the United States must make significant progress in the little more than four months remaining before COP28.
In addition, US data released on Friday and the Fed's blackout period enable the USD/CNH to recover. In spite of this, the preliminary reading of the University of Michigan's (UoM) Consumer Confidence Index increased to 72.6 from 64.4 in June, in contrast to market expectations of 65.5. According to the UoM survey, consumer inflation expectations for one year and five years increased to 3.4% and 3.1%, respectively, from 3.3% and 3% previously. Prior to that, the US Consumer Price Index (CPI) and Producer Price Index (PPI) for June fell from 4.0% and 0.9% YoY, respectively, to 3.0% and 0.1% YoY, which subsequently weakened the US Dollar.
As a reflection of sentiment, S&P500 Futures post modest losses, while US Treasury bond yields remain stagnant due to Japan's holiday.
The US NY Empire State Manufacturing Index for June may influence intraday movements of the USD/CNH pair, but the US Retail Sales and Sino-US headlines will receive the most attention.
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