Aussie Bounces Together with Yuan, Canadian Awaits CPI

In an otherwise lackluster Asian trading session, Chinese actions add a zing today. The rebound in Yuan, propelled by China’s stepped-up measures to curb its slide, provided a boost to stock markets in both China and Hong Kong. The ripple effects are also being felt by Aussie and Kiwi, which are witnessing a bounce. Canadian Dollar also trades on the stronger side as investors await inflation data from Canada. Conversely, amid risk-on sentiment, Dollar, Yen, and Swiss Franc are trailing as the day’s underperformers, while Euro and Sterling are trading mixed.

CAD/JPY would be an interesting one to watch today. On one side, robust consumer inflation data from Canada could strengthen the argument for another interest rate hike by BoC next month, thereby bolstering the Loonie. On the other hand, as Japanese officials grow increasingly vocal, the threat a Yen intervention looms large. Therefore, as CAD/JPY rally nears 110.87 high, it might start shedding momentum due to profit-taking. From a technical standpoint, breaking of 106.53 support level would confirm a short-term top and usher in a deeper pullback.

In Asia, at the time of writing, Nikkei is down -0.74%. Hong Kong HSI is up 1.56%. China Shanghai SSE is up 0.93%. Singapore Strait Times is up 0.41%. Japan 10-year JGB yield is up 0.0196 at 0.373. Overnight, DOW dropped -0.04%. S&P 500 dropped -0.45%. NASDAQ dropped -1.16%. 10-year yield dropped -0.020 to 3.719.

China steps up efforts to curb yuan’s decline, defends 7.25

The Offshore Chinese Yuan (CNH) is witnessing a revival today, as China appears to be intensifying its efforts to curb the currency’s recent slump. Market participants view 7.25 level against Dollar as a significant psychological threshold to uphold.

According to a report by Reuters, there’s evidence that major state-owned Chinese banks are selling dollars in the offshore spot foreign exchange market. This activity suggests that authorities are keen to slow the yuan’s precipitous decline in recent times.

In an additional bid to temper the yuan’s slide, China set its daily reference rate for the managed currency at a stronger-than-anticipated level for a second consecutive day. This move underscores PBoC’s dissatisfaction with the currency’s recent rapid and unilateral depreciation, particularly the swift move from 7.25.

From a pure technical point of view, further rally is still in favor in USD/CNH as long as 7.1036 support holds. But the pair would likely lose upside momentum further as it approaches 161.8% projection of 6.6971 to 6.9963 from 6.8100 at 7.2941. It’s unlikely for USD/CHN to break through 7.3745 high at the first attempt.

AUD/JPY bounces, ready for 97.66

AUD/JPY bounces today as Aussie is somewhat lifted by the recovery in Chinese Yuan, after China stepped up efforts to slow its decline. From a technical perspective, the failure to sustain below 55 4H EMA is a near term bullish sign. Immediate focus is back on 86.83 minor resistance. Firm break there will suggest that pull back from 97.66 has completed at 95.24 already. Further rally should then be seen through this 97.66 resistance.

Overall, near term upside momentum is diminishing as seen in D MACD. Hence, while rise from 86.04 could extend further to retest 99.32 high, upside could be limited there on first attempt. Still, sustained break of 55 D EMA (now at 92.84) is needed to confirm topping. Otherwise, outlook will remain cautiously bullish even in case of another pull back.

Looking ahead

While the European calender is basically empty, there are some notable release to watch in North America session. Canada CPI will be crucial for BoC to determine whether to continue the restarted tightening cycle in July. From the US, focuses will be on durable goods orders and consumer confidence, while house price index and new home sales will also be featured.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6664; (P) 0.6679; (R1) 0.6690; More…

Intraday bias in AUD/USD is turned neutral with current recovery. On the upside, firm break of 0.6740 resistance will argue that pull back from 0.6898 has completed, and turn bias to the upside for stronger rebound. Nevertheless, break of 0.6662 will resume the fall to 61.8% retracement of 0.6457 to 0.6898 at 0.6625. Sustained break there would bring deeper decline back to 0.6457 support.

In the bigger picture, outlook is mixed up by the deeper the expected pull back from 0.6898. Still, price actions from 0.7156 are seen as a correction to rebound from 0.6169. Break of 0.6457 will resume the fall towards 0.6169 low. On the upside, though, break of 0.6898 resistance will argue that rise from 0.6169 is ready to resume through 0.7156.

Economic Indicators Update