CNH: USD/CNH Range Bound Despite Fresh USD Weakness, CNY Basket Lower
USD/CNH was little changed in Tuesday trade, with the pair tracking near 7.1700 in early Wednesday dealings. Tuesday's range was close to 7.1800 on the topside, while a late dip under 7.1700 drew some support. Broader USD sentiment was softer, with the BBDXY losing a further 0.40%, while the DXY fell by close to 0.50%. Spot USD/CNY finished up at 7.1690, while the CNY CFETS basket tracker fell by 0.24% to 95.87, as the yuan underperformed renewed USD weakness.
- For spot USD/CNH recent ranges continue to prevail amid a very low backdrop. The 50-day EMA resistance point remains intact on the topside, last around 7.1900. Earlier July lows near 7.1500 will be a focus point on the downside.
- An extension lower for US yields appears to have assisted the USD move on Tuesday, helped by Treasury Secretary Bessent providing a more optimistic tone regarding Powell’s short-term future as the Fed Chair.
- US-CH yield differentials continue to track lower, but for the 2yr and 10yr tenors we are above late June lows. The 10yr spread is around +265bps.
- Equity sentiment remains positive for China, with the CSI 300 closing near 4119, fresh highs back to Nov last year. In US trade, the Golden Dragon index gained +1.7%. We continue to see the China to global equity ratio firm, but this isn't providing much positive impetus to CNH.
- "US Treasury Secretary Scott Bessent said he will meet his Chinese counterparts in Stockholm next week for their third round of trade talks aimed at extending a tariff truce and widening the discussions." (per BBG, see this link).
- The local data calendar is empty today.
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Historical bullets
AUSSIE 3-YEAR TECHS: (U5) Holds Off Lower Levels
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.650 @ 15:07 BST Jun 20
- SUP 1: 95.900 - Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures rallied off lower levels on the recent RBA rate cut and guidance, however prices remain south of the 50-dma for now. The recent rally took out resistance at 96.730, the Sep 17 ‘24 high, however momentum faltered, leaving 96.860 resistance intact. This remains the key level to the upside. Instead, a continuation lower would strengthen a bearish theme. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would refocus attention on 96.860, the Apr 7 high.
USDCAD TECHS: Corrective Cycle
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3832/1.3920 50-day EMA / High May 21
- RES 1: 1.3747 High Jun 19
- PRICE: 1.3733 @ 16:23 BST Jun 20
- SUP 1: 1.3540/3521 Low Jun 16 / 1.0% 10-dma envelope
- SUP 2: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 3: 1.3473 Low Oct 2 2024
- SUP 4: 1.3410 1.764 proj of the Feb 3 - 14 - Mar 4 price swing
The trend needle in USDCAD points south and this week’s recovery is considered corrective. Resistance at the 20-day EMA, at 1.3710, has been pierced. A continuation higher would signal scope for a stronger retracement and expose pivot resistance at the 50-day EMA, at 1.3832. For bears, a reversal lower and a resumption of the downtrend would pave the way for an extension towards 1.3521, envelope-based support.
LOOK AHEAD: Next Week's Key US Data Releases
US data is headlined by Thursday’s Q1 GDP revisions and Friday’s PCE report for May although there are plenty of other releases that will be watched with interest throughout the week.
- Q1 GDP data will be “stale”, especially being a third release, but it will nevertheless help the Fed assess whether its previous view on the economy is playing out. Recall that Powell at the May FOMC press conference said he expected consumption and inventories to have increased more strongly than first reported in the flash release. Last month’s second release showed that only partly played out, with inventories revised even higher but consumption revised down from 1.8% to 1.2%. Nevertheless, Powell at Wednesday’s June FOMC press conference still described the downward revised 2.5% for PDFP as “solid”.
- The May PCE report should be more impactful for clues on latest consumer momentum amidst strong income growth. Retail sales saw the largest monthly drop since March 2023 although the closely-watched control group was stronger than expected. As for inflation metrics, core PCE is seen around 0.15% M/M in May judging by unrounded estimates after the usual CPI, PPI and import price inputs, after 0.12% M/M in April.
- As for the other releases to watch, Monday’s preliminary June PMIs will give timely updates on wider activity after Empire and Philly Fed manufacturing surveys remained in contractionary territory. We also expect greater than usual focus on housing data (existing home sales Mon, new home sales Wed) after what have been some troubling releases across both construction and sentiment. Tuesday then sees the Conference Board consumer survey for an alternative look at the improvement since the de-escalation in trade policy before Wednesday’s advance trade data for the latest post tariff front-running update.
