USD CNH

Chinese consumer confidence is weak, domestic consumption remains muted, and unemployment among youth has surged, raising concerns about unrest and long-term stagnation.

AUD/USD made a minor recovery from its 13-month low late on Wednesday, but whether it can muster up the strength for a decent bounce likely sits in the hands of USD/CNH. Although the ASX 200 could be set for a bounce with the Nasdaq reaching a record high and the S&P 500 close to its own ATH.

USD/CNH has mirrored DXY trends quite well of late, and the Trump-fueled rally faces its next major test with US CPI data set for release tomorrow.

The Aussie’s got its eyes on the yuan. With USD/CNH pushing higher, the Aussie’s set for a potential bounce – or a big drop.

Traders are eyeing China’s stimulus announcement on Friday. Will it be substantial enough to counter weak growth and Trump’s looming 60% tariffs? The market reaction for USD/CNH, iron ore and copper hinges on the detail.

USD/JPY and USD/CNH remain heavily influenced by the US Treasury market, where rising yields are boosting the dollar’s yield advantage over both the yen and yuan. Given the ongoing trends in both rates and FX markets, the path of least resistance for these currency pairs continues to point higher.

USD/CNH is flirting with its most bullish day of the year (0.59%) on the back of the rumors of a potentially tighter cap on semiconductor exports and Trump’s rising odds of winning the election.

We’ve seen plenty of short squeezes before that have quickly run out off puff. But with speculation swirling that policymakers may follow up Tuesday’s monetary policy easing with fiscal stimulus ahead of Golden Week holidays, that alone may be enough to promote further gains in the days ahead.

For all the fundamental reasons put forward to explain their day-to-day movements, one look at price action suggests technical factors are arguably just as important in determining movements in the likes of Hong Kong’s Hang Seng, USD/CNH and crude oil. With each of these markets near important levels, we look at the price signals to evaluate where their directional risks lie.

With no major US labour market data released this week, it will be left up to central bank commentary, PMI reports, bond auctions and quarter-end flows to dictate direction. Put together, unless we see evidence of an alarming deterioration in activity from major developed nations, the combination points to an environment where riskier asset classes may outperform.

With Chinese economic data showing no meaningful sign of improvement, and with over 200 basis points of rate cuts expected in the US over the next 12 months, any stabilisation or reversal in rate differentials between the US and China could deliver renewed weakening in the offshore-traded yuan. And that may be bad news for AUD/USD bulls.