USD/CNH slides to three-week low around 7.2400 on PBoC RRR cut, upbeat China PMI, focus on US NFP

• USD/CNH refreshes multi-day low on hawkish PBoC action, upbeat China data.
• PBoC to cut RRR by 2.0%, China Caixn Manufacturing PMI improves for August.
• Recent US data, pre-NFP consolidation allows US Dollar to edge higher despite looming Fed policy pivot concerns.
• Strong US employment data needed to stop Yuan from reaching multi-day high.

USD/CNH remains pressured at the lowest level in three weeks, after falling the most in a fortnight the previous day, as the offshore Chinese Yuan (CNH) buyers cheer upbeat China activity data for August and the People’s Bank of China’s (PBoC) moves. That said, the currency pair refreshed the multi-day low to 7.2390 before a few minutes while staying depressed at 7.2540 at the latest.

China’s Caixin Manufacturing PMI for August rose to 51.0 versus 49.3 market forecasts and 49.2 previous readings. On Thursday, China’s official NBS Manufacturing PMI for August rose to 49.7 versus 49.4 expected and 49.3 previous readings whereas the Non-Manufacturing PMI came in as 51.0 compared to 51.5 prior readouts and market forecasts of 51.1.

Earlier in the day, China's central bank, namely the People's Bank of China (PBoC) also announced early Friday that it will lower the foreign exchange reserve requirement ratio to 4%, from 6.0%, effective from September 15.

Further, a slew of China banks cut interest rates on Yuan deposits while citing the readiness to ease the pressure from lower mortgage rates, per Reuters. Among them, ICBC, China Industrial Bank, Agricultural Bank of China and Bank of China (BoC) gained major attention.

With this, the USD/CNH pair remains on the back foot amid expectations that China will be able to defend the economy from slipping back into COVID-induced hardships.

On the other hand, the US Dollar Index (DXY) fades the previous day’s corrective bounce off the 200-DMA as market players appear divided about the US Federal Reserve’s (Fed) next step considering the previous day’s mixed data versus earlier downbeat signals.

On Thursday, the Fed’s preferred inflation gauge, namely the US Core Personal Consumption Expenditure (PCE) Price Index for August, matched market forecasts of 4.2% YoY and 0.2% MoM versus 4.1% and 0.2% respectively priors. Further, the Initial Jobless Claims dropped to 228K from 232K prior (revised) versus 235K market forecasts while the Chicago Purchasing Managers’ Index rose to 48.7 for August compared to 44.1 expected and 42.8 previous readings. Additionally, Personal Spending rose past the 0.6% expected and previous readings to 0.8% for July whereas Personal Income eased to 0.2% for the said month, from the 0.3% market forecast and prior.

It should be noted that the US Dollar rallied the most in a week after the data, especially when Atlanta Fed President Raphael Bostic defended the US central bank’s view of keeping rates high.

While portraying the mood, the US 10-year and two-year Treasury bond yields remain depressed around the lowest level in three weeks while the US stock futures dwindle after a mixed Wall Street close.

Given the mixed mood and pre-data anxiety, the USD/CNH bears may take a breather ahead of the US employment report. Forecasts suggest 170K figures of the Nonfarm Payrolls (NFP) versus the previously upbeat outcomes of the JOLTS Job Openings, ADP Employment Change and higher prints of the US Continuing Jobless Claims. Additionally, the three-month average of the US NFP halves to 218K versus a year earlier. As a result, the overall scenario of the US job numbers appears downbeat and can only defend the USD/CNH by posting an extremely strong outcome.

Technical analysis

Unless providing a daily close beneath a 4.5-month-old rising support line and the 50-DMA, respectively near 7.2370 and 7.2330, the USD/CNH pair remains on the bull’s radar.