USD/CNH steadies around 6.8800 amid mixed concerns about PBOC, Fed and geopolitics

• USD/CNH treads water around 6.8800 for the second consecutive day amid mixed catalysts.
• PBOC is likely to defend current monetary policy even if easy measures are preferable in China.
• Hawkish Fed bets, upbeat China data and geopolitical tension surrounding Taiwan, Russia also prod offshore Chinese Yuan traders.

USD/CNH portrays a cautious mood ahead of the People’s Bank of China’s (PBOC) Interest Rate Decision, up for publishing on Thursday, as the offshore Chinese Yuan (CNH) pair dribbles near 6.8800 for the second consecutive day amid early Wednesday. Also challenging the key Chinese currency pair are the mixed catalysts surrounding the Dragon nation and the recent risk-off mood.

Although the PBOC is all set for another status quo on Thursday, by holding the benchmark Loan Prime Rates (LPR) unchanged, the recently positive China data jostles with the nation’s dovish bias about the monetary policy to challenge the watchers.

China reported an upbeat print of the first quarter (Q1) Gross Domestic Product (GDP) the previous day while also marking welcome prints of the Industrial Production and Retail Sales for March. That said, China’s Q1 GDP grows 2.2% QoQ versus 2.2% expected and 0.0% prior. Further, Retail Sales growth jumps 10.9% YoY in March versus 7.4% expected and 3.5% prior whereas Industrial Production eased below 4.0% expected growth figures to 3.9%, versus 2.4% previous readings.

Apart from the data, the International Monetary Fund’s (IMF) optimism about the dragon nation also favors the CNH bulls. The IMF’s latest report on Tuesday said that China will be the top contributor to global growth over the next five years, with its share set to be doubled that of the US, per Bloomberg.

On the other hand, news surrounding the US House China Committee’s discussion about the Taiwan invasion scenario and a likely drag on the US debt ceiling decision seem to roil the risk profile of late, which in turn favors the US Dollar rebound. On the same line could be the recently downbeat US data and hawkish Fed bets. It should be observed that a mixed earnings season also prods the sentiment and the Natural Gas price. Furthermore, Bloomberg released news suggesting China’s role in the Russia-Ukraine war, which in turn joins US President Joe Biden’s resistance in negotiating debt limit to also weigh on the sentiment.

It’s worth observing that recently downbeat US data contrasted with the hawkish Fed bets to weigh on the US Dollar on Tuesday.

US Housing Starts and Building Permits roiled the mood with downbeat prints for March on Tuesday. That said, the Housing Starts eased to 1.42M versus 1.432M prior and 1.40M market forecasts whereas the Building Permits dropped to 1.413M from 1.55M previous readings and analysts’ estimations of 2.2M.

Talking about the Fedspeak, St. Louis Federal Reserve President James Bullard said on Tuesday, in an interview with Reuters, “Interest rates will need to continue to rise in the absence of clear progress on inflation.” On Monday, Richmond Fed President Thomas Barkin said that he wants to see more evidence of inflation settling back to target. Recently, Atlanta Fed President Raphael W. Bostic who recently mentioned that the economy is still gaining momentum, but inflation is too high.

Moving on, Thursday’s PBOC may fail to offer a clear guide to the USD/CNH pair watchers until surprising the markets. As a result, the risk catalysts and the Fed Beige Book should be observed for clear directions.

Technical analysis

A three-week-old resistance line joins 50-DMA to restrict short-term USD/CNH advances near 6.8870-80 at the latest.