USD/CNH drops to lowest since June 2018 on continued yuan rally

• Yuan rises to the highest level in nearly two years. 
• The Fed-PBOC monetary policy divergence weighs over the greenback.

The offshore Chinese yuan (CNH) continues to gain ground, pushing the USD/CNH pair to multi-year lows.

The pair fell to 6.4063 a few minutes before press time – the lowest level since June 2018 – having peaked near 7.20 in May 2020.

The divergent monetary policies adopted by the Federal Reserve (Fed) and the People's Bank of China (PBOC) look to be driving the currency pair lower. 

While the Fed is running an open-ended asset purchase program and is committed to keeping interest rates at record lows for a prolonged period, the PBOC has tightened its monetary stimulus. The central bank's governor Yi Gang vowed last month to normalize policy. 

Besides, markets expect US President Joe Biden to deliver aggressive fiscal spending to bolster economic growth, which took a hit in the second quarter of 2020 due to coronavirus pandemic. 

Technical levels