USD CNH

Trump's tariff escalation has sparked fresh volatility across major currency pairs, pushing the US dollar to new heights. EUR/USD, USD/CAD, and USD/CNH are now at key technical levels, with traders bracing for potential breakouts or bounces. Here's what you need to know.

Trump's tariffs and divergent monetary-policy expectations between the RBA and Fed are weighing on AUD/USD. But whether it can hold above the January low could come down to whether USD/CNH breaks above its 2022 high.

It has been a volatile week for FX traders so far this week, and one which has benefitted AUD/USD and yuan bulls. While both could extend their moves if US-Sino relations remain as warm as they first appear, traders would also be wise to remember volatility cuts both ways. Especially when Trump is waving his executive-order pen around.

Where the US dollar index goes, USD/CNH follows. And if we're treated to a softer set of US CPI figures, it could prompt a pullback on both. This also coincides with a series of bullish clues on the China A50 index.

China’s central bank is stepping in to slow the yuan’s slide, moving to boost overseas borrowing. While the adjustment offers short-term relief, USD/CNH bulls remain in control as the focus shifts to US inflation, China’s data dump, and Trump’s looming tariff threats. Can Beijing hold the line, or is a push to fresh highs inevitable?

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.

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.

USD/CNH is pushing higher on Monday while China A50 futures are sliding, reversing moves seen on Friday. Now, as was the case then, fundamentals underpinning the moves continue to link back to China’s spluttering property sector.

Something unusual has happened in FX markets this week that may keep the Australian and New Zealand dollars buoyant against the USD: the offshore-traded Chinese yuan, or CNH, has continued to strengthen against the greenback, bucking the trend seen in other major currencies such as the Japanese yen and euro.

USD/CNH is threatening to break higher after the PBOC cut key policy rates, putting a potential retest of the 2024 highs on the cards. Given its historical close correlation with USD/JPY, renewed yuan weakness could drag other Asian currencies lower against the dollar.

Bargain hunting by consumers and signs of a bottoming in housing construction have bolstered the case for the RBA to resume lifting interest rates, sending AUD/USD back towards of the top of its trading range. But whether it can break through may be determined by what happens with the Chinese yuan which continues to weaken against the US dollar.

If you want insight as to what direction USD/JPY may head next, there are worse indicators out there than USD/CNH right now. Because rather than the Japanese yen leading broader moves against the US dollar, evidence suggests it’s the Chinese yuan that’s the catalyst, at least in recent times.

With the US dollar staging a big bearish reversal to kick off the trading week, there’s a risk we may see follow through selling before the release of the key core PCE deflator on Friday, the Federal Reserve’s preferred inflation measure. If that does eventuate, keep an eye on USD/CNH which may be influential on the broader Asia FX space, including the Japanese yen.

Only intervention from the Bank of Japan (BOJ) or a dramatic increase in Fed rate cut bets look to be standing between USD/JPY and a test of the multi-decade highs struck in late April, unless the People’s Bank of China (PBOC) moves aggressively to curb weakness.