- USD/CNY prints the biggest daily gains in a month despite showing no major reaction to strong China PMI data.
- China Caixin Services PMI crossed previous readouts during December.
- China policymakers brace for yuan restrictions, Premier Li hints at more stimulus to stabilize growth.
- DXY tracks firmer yields amid increasing hopes of Fed rate hikes, balance sheet normalization ahead US ISM Services PMI.
USD/CNY seesaws around $6.3680 while keeping the biggest daily gains in a month, up 0.20% intraday, during early Thursday. In doing so, the Chinese yuan (CNY) pair seems to believe in the latest comments from Beijing, even as the reaction to the latest data is muted when cheering hawkish hopes concerning the US Federal Reserve’s (Fed) next step.
China’s Caixin Services PMI rose past 52.1 figures flashed in November to 53.3 for December. The private services gauge followed its Manufacturing counterpart.
However, hints from the Chinese policymaker suggesting actions to control CNY strength and stabilize the economy are likely to fuel the USD/CNY prices of late. That said, Reuters came out with the news spotting China outlet while saying the Chinese authorities are seen implementing more drastic measures after the recent multi-pronged attempts.
Following that, China Premier Li Keqiang said, “The government will implement greater tax and fee cuts for businesses and would provide targeted support for COVID-affected sectors such as services,” per Reuters.
On the other hand, the US dollar cheered hawkish signals from the Federal Open Market Committee (FOMC) Meeting Minutes suggesting a faster rate-hike and plans to discuss balance-sheet normalization. Following the Minutes, the US bond yields rally and the Fed interest rate futures point at the 80% chance of a hike in March 2022.
Given the strong US ADP Employment Change for December, 804K versus 400K expected, statements from the Fed Minutes like, “conditions for a rate hike could be met relatively soon if the recent pace of labor market improvements continues” also propelled the US bond coupons.
While portraying the mood, the US 10-year Treasury yields jumped to the highest level since April 2021 by the end of Wednesday’s North American session, up 3.4 basis points (bps) to 1.70%, which in turn drowned the Wall Street benchmark. Though, the recent pause in the US bond yields allowed S&P 500 Futures to print mild gains of around 4,700.
Moving on, monthly prints of the US Good Trade Balance and ISM Services PMI for December, as well as weekly prints of US Jobless Claims, will direct immediate USD/CNY moves, mostly to the north. Though, cautious optimism prevails ahead of Friday’s US Nonfarm Payrolls (NFP).
Unless successfully crossing a two-month-old descending resistance line around $6.3750, USD/CNY bears keep targeting to refresh the three-year low, flashed on December 31, 2021, around $6.3400.