USD/CNH eyes 6.90 on downbeat Caixin Manufacturing PMI

• USD/CNH is having a smooth ride towards 6.90 on weaker-than-anticipated Caixin Manufacturing PMI data.
• The Chinese Yuan is expected to remain on the backfoot as oil prices have soared dramatically.
• Higher oil prices are expected to spur the prices of goods and services at factory gates ahead.

The USD/CNH pair has turned speedy towards the immediate resistance of 6.90 as the IHS Markit has reported a downbeat Caixin Manufacturing PMI data. The economic data has landed at 50.0, lower than the consensus of 51.7 and the former release of 51.5.

The Chinese Yuan is expected to remain on the backfoot as oil prices have raised dramatically after OPEC+ announced a further increase in production cuts to support oil prices. According to Reuters, the oil cartel will cut the overall oil production by around 1.16 million barrels/day (bpd), which will lead to the overall pledge of production cut to 3.66 million bpd.

It is worth noting that higher oil prices will significantly weigh on the oil price as China is the largest importer of oil in the world. Higher oil prices would result in more outflows from the Chinese current account for refilling oil.

S&P500 futures have generated some losses in the Asian session in hopes that higher oil prices would propel inflation risk again, portraying a decline in the risk appetite of the market participants.

The US Dollar Index (DXY) has resumed its upside journey after a marginal correction to near 102.80. The USD Index is expected to reclaim its weekly high of 102.95. More gains for the USD Index are in pipeline as fears of renewed United States inflation have strengthened. Higher oil prices are expected to spur the prices of goods and services at factory gates to offset the impact of the former, which would propel inflationary pressures ahead.

The Federal Reserve (Fed) is expected to continue its policy tightening process further to tame the stubborn inflation. As per the CME Fedwatch tool, the odds for a 25bp rate hike to 5.00-5.25% for May monetary policy meeting have escalated to 57%.