Ella 
USD/CNH: Resistance hits 7.2900 as PBOC defends currency and U.S.-China bond yield spreads hit multi-year highs
USD/CNH rebounded from a one-week low to 7.2880 after the Chinese markets opened on Tuesday. During this period, the offshore yuan validated the measures of the People’s Bank of China (PBoC) to defend the yuan, as well as the widening spread between Chinese and US bond yields.
Continuous open market operations (OMOs) by the People’s Bank of China and yesterday’s rate cut have spurred CNH bulls, especially amid negative sentiment. On Tuesday, the People’s Bank of China’s daily open market operations showed a net injection of about 93 billion yuan that day.
That said, Bloomberg still published an analysis pointing to a lack of confidence in the PBOC’s ability to defend the yuan. Also weighing on the yuan is the prospect of strong U.S. wage growth.
Late Monday, the New York Fed’s SCE labor market survey showed wage expectations hit a record high, which may have contributed to the latest risk aversion, as well as the firmer bond yields. The minimum wage respondents are willing to accept for a new job jumped to a record high of $78,645 from $72,873 a year ago.
Elsewhere, the spread between 10-year U.S. Treasury yields jumped to its widest level since 2007.
In addition, pessimism also weighed on USD/CNH. Standard & Poor’s Global Ratings downgraded several U.S. banks, while highlighting the negative impact of rising interest rates and falling deposits. It is worth noting that Moody’s initiated measures to lower the ratings of several banks in early August, triggering market risk aversion.
Next, China news and bond yield performance may be in focus for USD/CNH traders, while US July existing home sales and August Richmond Fed manufacturing index will be the market’s key Fed official speeches focus.
