USD/CNH Pares Gains After PMI, US-China Tariffs in Focus

TALKING POINTS – PMI, USD/CNH, PBOC, TRADE WARS

• US Dollar reversed gains before Monday’s APAC trading session in response to PMI data
• PBOC takes steps to quell Yuan selling, as USD/CNH prices consolidate after rally
• Tariff-induced volatility may continue as Yuan awaits next shots in the trade war

The offshore Chinese Yuan briefly dipped against the greenback as local economic data crossed the wires ahead of Monday’s Asia Pacific trading session. September’s manufacturing PMI clocked in at 50.8, down from both economists’ forecasts of 51.2 and August’s 51.3. The services gauge for this month came in at 54.9, an uptick from the estimate of 54.9 and the previous 54.2. The composite measure was 51.1, beating last month’s 53.8. However, in spite of the slight rally, the US Dollar went on to pare its gains against the Yuan later on in weekend trading.

USD/CNH 30-Minute Chart

Despite USD/CNH’s cautious lowering, it has appreciated for the majority of this year. Currently, the currency pair is eyeing the April 4th uptrend while consolidating around the 6.77-6.87 range. An increasingly hawkish Federal Reserve and global uncertainty amidst trade wars have boosted USD strength. On the other hand, the People’s Bank of China announced that it will issue central bank bills in Hong Kong in order to manage Yuan liquidity, in response to widespread selling of the unit.

USD/CNH Daily Chart

Looking ahead, impacts of trade war tensions continue to weigh on the currency. Last week the Yuan experienced volatility after US tariffs on $200B of local goods kicked in on September 24th, with retaliatory regulations on $60B American products swiftly following. Furthermore, China’s Premier Li Keqiang announced that the nation would not pursue currency devaluation to increase exports, possibly paving the way for Yuan strength. USD/CNH also faces the release of September’s US ISM manufacturing and employment data and Chinese New Yuan Loans.

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--- Written by Megha Torpunuri, DailyFX Research Team