USD/CNY analysis as the US dollar index (DXY) surge continues

The USD/CNY exchange rate continued rising on Tuesday as concerns of the hawkish Federal Reserve remained. The renminbi was trading at 7.3065 against the US dollar, a few points below the year-to-date high of 7.350. It has jumped by more than 9.25% from the lowest level this year.

Hawkish Federal Reserve

The USD/CNY pair has been in a strong bullish trend, helped by the strong US dollar index (DXY). The DXY was trading at $105.60, the highest level in more than six months. It has jumped by over 5% from the lowest point this year.

The pair jumped as investors reacted to the latest actions by the Federal Reserve. As we wrote here, the Fed decided to hike interest rates unchanged at 5.25% – 5.50%, the highest point in two decades. The Fed dot plot pointed to another 0.25% rate hike this year.

American bond yields have surged to the highest level in decades. The 2-year yield has risen to over 5% while the 10-year and 30-year has jumped to the highest point in over 15 years. Mortgage rates are also expected to hit over 8% in the coming months.

The USD/CNY exchange rate has also continued rising because of the performance of the Chinese economy. The key parts of the Chinese economy like real estate, industrial production, and manufacturing output have retreated.

Therefore, there is a likelihood that the Chinese economy will not achieve the 5% target set by Beijing. For one, the real estate sector is on the verge of collapse. Companies like Country Garden, Evergrande, and Sunac are on life support. 

USD/CNY technical analysis

The daily chart shows that the USD to CNY exchange rate has been in a strong bullish trend this year. It recently above the key resistance point at 7.2700, the highest point on June 30th. 

The pair has moved above the Ichimoku cloud indicator. The price has moved above the 50-day and 25-day moving averages while the Relative Strength Index (RSI) moved above the neutral point.

Therefore, the outlook for the USD/CNY is bullish, with the next key resistance level to watch being at 7.3496, the highest point on September 8th. A break above this point will see it soar to a high of 7.400.