USD/CNH renews 26-month high around 7.0500 as pre-Fed jitters intensify

• USD/CNH takes the bids to refresh multi-day high during three-day uptrend.
• China’s covid update joins economic fears, Sino-American tussles to weigh on CNH prices.
• US dollar cheers hawkish Fed bets ahead of the FOMC.

USD/CNH portrays the market’s pessimism surrounding China, as well as the hawkish expectations from the US Federal Reserve (Fed) during early Wednesday. In doing so, the offshore Chinese Yuan (CNH) pair takes the bids to poke the July 2020 high during the three-day uptrend, close to 7.0450 at the latest.

News of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, shared by Reuters, recently propelled the USD/CNH prices. On the same line could be the People’s Bank of China’s (PBOC) inaction, marked the previous day.

Also, Reuters reported that the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China. That said, the ADP trims China’s growth forecasts to 3.3% this year, versus previously trimmed forecast of 4.0% from 5.0% in April.

Elsewhere, the Fed’s 75 basis points (bps) rate hike bore 83% chance and there are market hawkish among the 17%, including Nouriel Roubini, a well-known global economist, who expect a full one percent rate increase from the US central bank. Such hawkish expectations joined strong yields to propel the DXY the previous day.

That said, the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top on Tuesday. For now, the S&P 500 Futures lick its wounds near 3,880 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high.

Moving on, risk catalysts surrounding the Sino-American ties and covid may entertain the USD/CNH traders. However, the attention will be on how the Fed manages to avoid recession and still try to tame inflation, which in turn highlights today’s economic forecasts and a speech from Fed Chairman Jerome Powell as more important events than the interest rate announcement.

Technical analysis

A two-week-old resistance line near 7.0620 challenges immediate USD/CNH upside. It should, however, be noted that the sellers remain far from the sight unless breaking a six-week-old support line, at 6.9600 by the press time.