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USD/CNH: Yuan Falls Below 7.2900 On PBOC Movements; US-China Yield Gap At Multi-Year High
USD/CNH recovers from intraday low but maintains week's beginning adverse trend. The 10-year yield differential between the United States and China reaches its greatest level since 2007. In an environment of economic pessimism, the markets are fearful of additional Chinese stimulus, which could lead to Yuan losses. USD/CNH is able to pare recent gains as a result of preparations for Jackson Hole Symposium.
The USD/CNH recovers from a one-week low marked earlier in the day, gaining bids to 7.2880 as China's markets open for business on Tuesday. In doing so, the offshore Chinese Yuan (CNH) validates the People's Bank of China's (PBOC) efforts to defend the currency, as well as the widening yield disparity between U.S. and Chinese Treasury bonds.
The PBoC's successive open market operations and the previous day's rate decreases encourage Yuan buyers, particularly amidst a negative mood.
Nonetheless, Bloomberg published an article indicating the market's lack of faith in the PBoC's ability to defend the Yuan. Fears of robust wage growth in the United States weigh on the Chinese currency as well.
The Federal Reserve Bank of New York released its SCE Labour Market Survey results late Monday, which indicated record wage expectations and may have contributed to the recent risk-averse sentiment and bond yield increases. The lowest wage respondents would accept for a new job reached a record high of $78,645 in July, up from $72,873 a year prior.
Aside from this, the difference between 10-year US and Chinese Treasury bond yields reaches its widest point since 2007 elsewhere.
Additionally, negative sentiment supports the USD/CNH Price. As a result, S&P500 Futures record their first daily loss in three days while fading the previous two-day rebound from a nine-week low, falling 0.15 percent intraday to 4,405 as of press time, as S&P Global Ratings downgrades a number of US banks and highlights the negative effects of higher interest rates and a decline in deposits. It is important to note that Moody's initiated these actions in early August, which triggered the risk-averse sentiment.
In addition, rumours of Chinese warship damage in the Taiwan Strait present an obstacle for USD/CNH bears.
Moving forward, China news and yields may provide amusement for USD/CNH traders, while the US Existing Home Sales for July and Richmond Fed Manufacturing Index for August will join speeches from mid-level Federal Reserve (Fed) officials to provide amusement for intraday traders.
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