APAC, MARKET SENTIMENT, CHINESE DATA, USD/CNH, CHINESE YUAN, and TECHNICAL OUTLOOK – TALKING POINTS

• After US stock indexes decline, risk-off trading is expected in the Asia-Pacific region.

• The August economic statistics for China will be released when the USD/CNH increases.

• After breaking beyond the crucial 7 barrier, the USD/CNH upswing may continue.

As a result of the market attitude deteriorating overnight during New York trade, a risk-off opening for Asia-Pacific trading is imminent. US market indices declined as conflicting economic data had no effect on wagers on a rate rise by the Federal Reserve. The odds of a 100-basis point rate increase at the FOMC policy statement next week are 22.1%, according to Fed funds futures. The benchmark S&P 500 fell 1.13% to settle at its lowest point since mid-July. In Friday, options worth slightly more than $3 trillion are scheduled to expire on US equities markets.

In April 2020, gold reached its lowest point since then. US retail sales for August outperformed expectations, up 0.3% from the previous month. Data on first unemployment claims indicated that greater rates are being experienced by the labor market. Throughout the day, selling pressure on Treasuries increased. Real yield that is sensitive to gold increased, with the 10-year rate rising beyond 1%. Bullion suffered as a result, falling below a necessary level of support. Prior to the data, the yellow was already in a precarious position. If FOMC bets get even more aggressive, gold and silver are likely to see significant decline.

Overnight, there was minimal movement in the US Dollar DXY index. A prospective rail strike in the US was avoided, which put pressure on the pricing of other commodities including WTI crude and Brent crude oil. Chicago lumber prices dropped by over 7%, while wheat prices dropped by more than 3%. The USD/CAD exchange rate increased to its highest level since November 2020 as a result of declining prices for timber and oil, two major exports from Canada.

AUD/USD and NZD/USD both fell by more than 0.5%. The Performance of Manufacturing Index (PMI) for August from BusinessNZ increased from 52.7 to 54.9, which is good news for the economy of New Zealand. Today’s emphasis is on economic statistics from China. Retail sales, industrial output, and fixed asset investment are all represented in the August figures. Retail sales are anticipated to increase from 2.7% y/y to 3.5%, while industrial output is predicted to stay constant at 3.8% y/y. A poor performance from today’s data might lead to more Yuan weakening.

The much monitored 7 level versus the US Dollar was broken by the Chinese Yuan. Daily fixes from the People’s Bank of China (PBOC) have been below analyst expectations for many weeks. With prices over 7, the central bank may become more active, but for the time being, it might adopt a wait-and-see strategy given that the strength of the USD is mostly to blame for the Yuan’s weakness.

Technical Outlook for USD/CNH

The psychologically intimidating 7 level was broken by USD/CNH, signaling a substantial technical advancement for the currency pair. The Yuan is expected to lose more than 1.5% versus the Dollar in September, which would be the seventh consecutive month that it has lost money. Although it is only 2.5% above current levels, the 261.8% Fibonacci extension presents a possible barrier for a move higher.

At 7.1964, the Fib extension is situated near to the highs for 2019 and 2020, overlaying the level with confluent resistance. Relative Strength Index (RSI) is on pace to invalidate a bearish divergence after breaking above 70 into overbought territory. The 161.8% Fib extension would be in danger if there was a retreat below the 7 level, and a breach below would reveal the 26-day Exponential Moving Average.

Daily USD/CNH Chart