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Chinese Currency Surges as PMI Tops Forecast

FOREX
  • The USD is fading early Wednesday, with the USD Index slipping through yesterday's lows well ahead of the NY crossover. Much of the price action has been driven by a solid beat for Chinese PMI data overnight, underpinning a CNH rally.
  • USD/CNH has shown below 6.90, having taken out support at the 200-dma of 6.9145. Downside moves initially target 6.8781 for direction, marking the 38.2% retracement for the Jan - Feb upleg. Moves follow better-than-expected PMI data overnight from China, with both the manufacturing and non-manufacturing PMI data topping forecast.
  • The non-manufacturing print at 56.3 was the strongest since the recovery from the initial waves of the pandemic in 2020, with 2020's 56.4 print the highest in 8 years.
  • The Chinese currency rally is also lending a helping hand to NZD, which outstrips all others in G10 and reflects the bounce in equity markets off the late Tuesday pullback lows.
  • Lastly, the single currency trades to the better following regional German CPI data, which could pose an upside risk to the February Eurozone revisions. North-Rhine Westphalia was a particular hotspot, with monthly prices rising 1.0%.
  • Wednesday focus turns to the ISM Manufacturing release for February, with January construction spending also on the docket. The data will be carefully eyed for any clues ahead of next Friday's Nonfarm payrolls release - due March 10th. Final February Manufacturing PMI data is also scheduled from the US and Canada.
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