Chinese Yuan, USD/CNH, PBOC, Fed, New Zealand, US Dollar – Talking Points
- Chinese Yuan weakens considerably versus a broadly weaker US Dollar
- New Zealand inflation data reflects global inflation surge but misses estimates
- USD/CNH rally pushes the Relative Strength Index into overbought conditions
Thursday’s Asia-Pacific Outlook
Asia-Pacific markets look set to open higher today after the US Dollar fell versus risk-sensitive currencies like the Australian Dollar and New Zealand Dollar. The high-flying USD/JPY pair even reversed course during US trading hours. The Dow Jones Industrial Average (DJIA) closed 0.71% higher as investors bought cyclical stocks. Netflix led technology stocks lower, with the tech-heavy Nasdaq-100 index closing 1.49% in the red.
The Chinese Yuan was an exception versus the Greenback. USD/CNH rose to its highest level since October 2021 this morning. The weakness may stem partly from the Federal Reserve’s hawkish shift through the last several months, as the yield advantage of Chinese bonds has fallen sharply against US Treasuries. The People’s Bank of China, on Wednesday, held its one-year loan prime rate steady at 3.7%, disappointing expectations for a cut.
In addition to the Fed’s actions, the recent weakness in the Japanese Yen may be complicating the scope for the PBOC to act, perhaps fearing capital flight. However, the Fed hasn’t dissuaded the Bank of Japan. Yesterday, the BOJ announced a new round of bond purchases, reaffirming its support for ultra-loose monetary policy. USD/JPY dropped over half a percent overnight.
A big question now is how long and far will the US Dollar’s slide extend. If the DXY index drops below the 100 level, it could bring about additional weakness from a technical standpoint. A weaker Greenback would bode well for risk assets, particularly in emerging markets. It could also help to push government bond prices higher in major economies. That was in fact what we saw today, with bond yields dropping in Australia and New Zealand.
New Zealand posted first-quarter inflation data this morning. The Q1 figure crossed the wires at 6.9%, missing the 7.1% Bloomberg consensus forecast and up from 5.9% in Q4’21. Overnight index swaps were pricing in nearly 50 basis points into the RBNZ’s next rate hike for the May 25 policy meeting. The island nation will release non-resident bond holdings data for March later today. Today will also see Hong Kong’s March unemployment rate cross the wires.
USD/CNH Technical Outlook
The Yuan weakened significantly against the USD over the past two days, pushing USD/CNH above its 200-day Simple Moving Average. That move also saw the Relative Strength Index (RSI) cross above the 70 level, which represents “overbought” conditions, although that doesn’t mean prices will immediately drop. The run higher may continue. However, a pullback may see the 200-day SMA offer support.
USD/CNH Daily Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter