USD/CNH

USD/CNH is threatening to break higher after the PBOC cut key policy rates, putting a potential retest of the 2024 highs on the cards. Given its historical close correlation with USD/JPY, renewed yuan weakness could drag other Asian currencies lower against the dollar.

Bargain hunting by consumers and signs of a bottoming in housing construction have bolstered the case for the RBA to resume lifting interest rates, sending AUD/USD back towards of the top of its trading range. But whether it can break through may be determined by what happens with the Chinese yuan which continues to weaken against the US dollar.

If you want insight as to what direction USD/JPY may head next, there are worse indicators out there than USD/CNH right now. Because rather than the Japanese yen leading broader moves against the US dollar, evidence suggests it’s the Chinese yuan that’s the catalyst, at least in recent times.

With the US dollar staging a big bearish reversal to kick off the trading week, there’s a risk we may see follow through selling before the release of the key core PCE deflator on Friday, the Federal Reserve’s preferred inflation measure. If that does eventuate, keep an eye on USD/CNH which may be influential on the broader Asia FX space, including the Japanese yen.

Only intervention from the Bank of Japan (BOJ) or a dramatic increase in Fed rate cut bets look to be standing between USD/JPY and a test of the multi-decade highs struck in late April, unless the People’s Bank of China (PBOC) moves aggressively to curb weakness.

The People’s Bank of China (PBOC) continues to loosen its grip on the Chinese yuan, sending USD/CNH highs not seen since late 2023 on Thursday. Given the influence the yuan has on emerging market and other Asian currencies, the technical break may have global ramifications if it sticks.

China’s fledgling economic recovery suffered another setback in April with activity indicators mostly disappointing, especially regarding the beleaguered property sector. The news weighed on the Chinese yuan and other Asian currencies, such as the Japanese yen and Australian dollar.

If you trade Asian currencies like the Japanese yen, Australian or New Zealand dollar, you should always keep a close eye on what’s happening in the Chinese yuan. You’re doing yourself a disservice if your not.

It’s hard to get excited about the prospects for Asian currencies when you see Chinese inflation data as weak as those released on Saturday, signifying that despite an increasingly lengthy list of measures to support activity, the world’s second-largest economy is operating well below its potential level.

Chinese economic activity is nearing stall speed with the government’s purchasing managers indexes (PMIs) falling further in November, surprising markets to the downside for a second consecutive month.

With USD/CNH and USD/JPY probing key support levels, we may require a break of them for AUD/USD to stand a chance of continuing its strong rally (which met strong resistance on Tuesday). Unless of course Australia is treated to an uncomfortably hot inflation report today, which could fan fears of another RBA hike.

We watched with bated breath to see if USD/CNH would break its 200-day average on Tuesday and pave the way for the next bout of US dollar weakness. Yet with that key level holding as support, it leaves room for some US dollar strength, a higher USD/JPY and weaker AUD/USD.

There was a risk that the RBA’s minutes were more hawkish than their November statement had let on, and this certainly seems to be the case. And hawkish minutes alongside a lower USD/CNH and USD/JPY have helped AUD/USD test a new cycle high today. Can it now gun for 66?

The latest episode of US economic exceptionalism may be coming to an end, resulting in US bond yields and US dollar coming off their highs. Major Asian FX names like the Japanese yen and Chinese yuan have been taking note, strengthening further against the buck on Friday.

AUD/USD is widely regarded as being a proxy for all things China: it’s economic performance, trends in financial markets and even the Chinese currency, the yuan.

The USD/CNH pair has been stuck in a tight range, unable to move in either direction. In recent days, the US dollar has weakened a little across the board owing to recent signs of peak interest rates in the US. But expectations that interest rates will remain elevated for a long period of time means that the greenback continues to find support against weaker currencies like the yuan and yen, among others.

It’s been a rough year for Chinese markets with the A50 share index and CNH down sharply as hopes for booming economic activity coming out of the pandemic failed to materialise.