The USD/CNH pair continues to slide, touching the lowest levels in seven days at around 7.1500 on early Tuesday, before stabilizing near 7.1600 later on.
The offshore Chinese Yuan (CNH) remains steady, backed by the People’s Bank of China’s (PBoC) actions to safeguard the domestic currency, while also benefiting from optimism surrounding potential additional stimulus measures from China.
The PBoC once again surprised USD/CNY forecasters by setting the reference rate at 7.1406, which was lower than the expected 7.1451 and the market’s 7.1860 forecasts. Notably, the previous day’s USD/CNY closing rate stood near 7.1882.
Concurrently, the Chinese central bank disclosed a 3-month bills swap valued at five billion Yuan and implemented a net 29 billion Yuan injection through Open Market Operations (OMOs).
Additionally, news from the Communist Party’s Politburo meeting on Monday revealed discussions about new economic challenges, leading policymakers to pledge cautious monetary and fiscal policies.
Despite these challenges, the policymakers expressed their commitment to implementing measures to bolster the economy’s recovery post-COVID, as reported by Reuters.
Simultaneously, China’s state planner, the National Development and Reform Commission (NDRC), released a notice aimed at promoting high-quality development in private investment. The NDRC emphasized support for participation in various projects, including those related to transport, water, clean energy, new infrastructure, and modern agriculture.
Consequently, Chinese stocks experienced a rally, while US stock futures faced minor losses, and the Treasury bond yields saw a gradual decline, triggering a retreat for the US Dollar.
Speaking of the US Dollar Index (DXY), it recently reached a two-week peak close to 101.40, supported by a five-day uptrend, and is currently trading mildly higher around 101.45. This is attributed to relatively positive PMI data and optimistic yields.
The first readings of the US S&P Global Manufacturing PMI for July demonstrated an improvement to 49.0 from the previous 46.3, surpassing market forecasts of 46.4. However, the Services PMI eased to 52.4 compared to the expected 54.0 and the previous reading of 54.4.
As a result, the Composite PMI dipped to 52.0 from 53.2, falling below market forecasts of 53.1. Additionally, the Chicago Fed National Activity Index for June slid to -0.32 from the revised -0.28, missing market forecasts of 0.03.
Looking ahead, the USD/CNH price may continue to be influenced by China’s stimulus news and the PBoC’s actions.
However, traders should closely monitor the US CB Consumer Confidence data for July, with an expected figure of 112.1 compared to the previous 109.70, as well as the forthcoming Federal Open Market Committee (FOMC) monetary policy meeting announcements on Wednesday, to determine clearer market directions.
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