The USD/CNH pair has stalled just below its 2023 high, mirroring a pullback in the US Dollar Index. Meanwhile, the China A50 index has rebounded strongly from its 200-day Simple Moving Average (SMA), offering a bullish outlook for Chinese equities.

USD/CNH and Dollar Index Tied to US Inflation Outlook

USD/CNH movements remain closely linked to the US Dollar Index, which retreated for the second consecutive session on Tuesday. Softer-than-expected US Producer Price Index (PPI) data fueled a modest risk-on sentiment, raising hopes that upcoming Consumer Price Index (CPI) figures could also surprise to the downside. Core PPI was flat month-over-month, while headline PPI rose just 0.2%, below the 0.4% forecast.

Despite this, markets remain cautious, with Federal Reserve rate cuts largely off the table unless a substantial weakness in CPI emerges. The US Dollar Index met resistance near the 110 handle, its 2022 weekly close high, which contributed to the pullback in USD/CNH. However, the pair still remains in a bullish structure, awaiting further clarity on Fed policy and US inflation.

Beijing appears comfortable with a weaker yuan, which may support an eventual breakout to the upside for USD/CNH. For now, traders are eyeing the monthly pivot point near the July high of 7.3112 as potential support before another upward move.

China A50 Shows Bullish Signals After Rebound

The China A50 index has shown signs of recovery after respecting the 200-day SMA at 12,604 as support. This technical level held firm during Monday’s session, setting the stage for a bullish expansion on Tuesday.

The index has been consolidating since its nearly 50% surge in just three weeks earlier, with lower trading volumes pointing to a lack of bearish momentum. On-balance-volume (OBV) has also formed a bullish divergence, signaling growing buying pressure.

With the bias remaining bullish above 12,600, the next upside target lies at 13,500. Traders could look for dips within Tuesday’s range to improve risk-reward ratios. Key support for any retracement includes the May high at 12,786. If the rally persists, the 14,300 level—around the 2023 high and a potential double top—becomes a focal point for bulls.

Market Drivers to Watch

Several economic events could influence USD/CNH and the China A50 index in the coming days. Key highlights include:

• UK CPI and PPI (11:30 AEDT)
• Eurozone Industrial Production (21:00 AEDT)
• US CPI (00:30 AEDT)
• Speeches from FOMC members Barkin, Kashkari, and Williams (01:00–02:00 AEDT)

Traders are also keeping a close eye on Scott Bessent’s confirmation hearing as Treasury Secretary, which could shape expectations for US Treasury yields and broader market sentiment. Any dovish signals could lead to a further pullback in the dollar, while boosting risk assets like Chinese equities.