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27 Sep 2023

USD/CNH sticks to modest gain near 7.3100 amid the Fed’s hawkish stance

  • USD/CNH hovers around 7.3125 following the Chinese data.
  • US Conference Board (CB) Consumer Confidence rose to 103.0 in September from 108.7 in August.
  • China’s Industrial Profits rose by 17.2% from a year earlier.
  • The US Core Personal Consumption Expenditure (PCE) Price Index data will be in the spotlight this week.

The USD/CNH pair posts modest gains around 7.3125 during the Asian session on Wednesday. The higher-for-longer rate narrative in the US may undermine risk sentiments and lift the Greenback against its rivals. Market players await the highly-anticipated US Core Personal Consumption Expenditure (PCE) Price Index data on Friday for fresh impetus. The annual figure is expected to decline from 4.2% to 3.9%.

The Federal Reserve (Fed) decided to hold interest rate unchanged in the 5.25% to 5.50% range in its September meeting last week. Apart from this, Fed officials still expect further rate rises later this year. Minneapolis Federal Reserve Bank President, Neel Kashkari stated on Tuesday that he is one of the Fed policymakers who sees one more rate hike this year. He added that US rates probably have to go a little bit higher and be held there for longer, to cool things off. The hawkish stance from the Federal Reserve (Fed) boosts the USD against the CNH.

About the data, economic data on Tuesday revealed that US Conference Board (CB) Consumer Confidence rose to 103.0 in September from 108.7 in August. The figures reached their lowest level in four months, reflecting the impact of rising interest rates and political uncertainty. In August, Building Permits came in at 1.541M from the previous month's figure of 1.44M. The House Price Index for July increased to 0.8% MoM from 0.4% in the prior reading, exceeding the consensus estimate of 0.5%. August New Home Sales decreased -8.7% from July's rise of 8%.

On the other hand, data released by the National Bureau of Statistics (NBS) showed on Wednesday that China’s Industrial Profits rose by 17.2% from a year earlier. This figure reversed the trend after declining in the past five months. Furthermore, the People's Bank of China (PBOC) stated on Wednesday that the central bank will step up policy adjustments and implement monetary policy in a precise and forceful manner in order to support the economy. Any evidence of China data improvement and PBoC warning could turn into a pullback in USD/CNH and act as a headwind for the pair.

Looking ahead, traders will take cues from the US Gross Domestic Product (GDP) Annualized for the second quarter on Thursday and the Core Personal Consumption Expenditure (PCE) Price Index will be released on Friday. These figures could give a clear direction to the USD/CNH pair.

 

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