Chinese yuan forecast: USD/CNH trades around 20-day SMA ahead of China CPI, PPI

Wednesday’s Asia-Pacific outlook

Asia-Pacific markets look poised for a risk-off session after stocks fell overnight in New York. The tech-heavy Nasdaq-100 Index (NDX) posted a 1.15% loss as traders sold chip-maker stocks following a downgraded revenue forecast from Micron, the largest US memory chip producer. The US dollar posted small gains against the risk-sensitive Australian dollar.

Iron ore prices fell in China after briefly trading above $110 a ton. The metal-making ingredient fell after China reported 828 local Covid cases for August 8, spanning more than ten provinces. The southern Hainan province and Tibet province contained a large chunk of those cases, forcing local authorities to order mass testing along with the closure of some public establishments.

Traders are bracing for inflation data out of China for July. The July consumer price index (CPI) is expected to rise to 2.9% on a year-over-year basis. That would be up from 2.5% in June and the biggest increase since April 2020. A hotter-than-expected print would challenge China’s 3% inflation target, which could complicate easing efforts by China’s government and central bank to support growth. The Chinese yuan may weaken on the data print, but much of those gains are likely from hog prices that surged in July. That said, markets may not punish the yuan or other China-related assets if CPI beats estimates.
The United States consumer price index for July is seen easing to 8.7% from 9.1% y/y. A drop in gasoline and crude oil prices has likely helped cool the price basket gains. Still, the core number—a gauge that strips out food and energy prices—is forecasted to rise to 6.1% from 5.9% y/y. That gauge may have a greater influence on Fed rate hike bets. A hotter-than-expected number could further degrade Fed pivot bets for 2023 and cause equity prices to fall.

The Bank of Thailand is seen hiking its benchmark rate today, which would be the first in nearly five years. USD/THB fell over 0.5% overnight, bringing the pair to the lowest level since early July. The Chinese e-commerce company Alibaba received approval for its primary listing on the Hong Kong Stock Exchange, according to the company. The news may be supportive of Chinese equity prices.

Notable Events for August 10:

• Japan – PPI YoY (July)
• Philippines – Retail Price Index YoY (April)
• Thailand – Consumer Confidence (July)
• Thailand – Interest Rate Decision

USD/CNH technical outlook

USD/CNH is around 0.10% lower this week, with prices trading around the 20-day Simple Moving Average (SMA). A supportive trendline from the June swing low may underpin prices if bears break below the 61.8% Fibonacci retracement. A break lower may see prices start to chip away at the gains made through the last five months.

USD/CNH daily chart

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