USD/CNY: Renmnibi is at risk as PBoC fights to save the currency

August 18, 2023 04:10 AM PDT | By Invezz

USD/CNY: Renmnibi is at risk as PBoC fights to save the currency — Image source: Invezz

China doing worse than expected

Earlier this week, I wrote that China’s retail sales, industrial production, and fixed assets investments rose at a slower pace than expected in July. All these numbers have been falling for the most part of this year.

Additional data published two weeks ago revealed that China’s exports and imports plunged in July. The drop of its imports pushed China’s trade surplus to over $80 billion during the month.

Analysts believe that China’s economy is doing worse than what official numbers are projecting. For one, most state-owned real estate companies have warned that their profits will drop this year.

These firms join privately-owned companies, which are on the verge of collapsing. Evergrande filed for bankruyptcy protection in New York and Country Garden is about to move into restructuring. Other smaller real estate companies are doing worse.

The collapse of China’s real estate sector is important because it accounts for more than a quarter of the economy. At the same time, data published by both S&P and Caixin showed that manufacturing PMI has contracted in the past few months. Also, the price to ship containers from China is falling, as evidenced by the weak ZIM Integrated earnings.

Meanwhile, the ongoing tensions between the United States and China are having an impact on investments in the country. As a result, foreign direct investments (FDI) in Chinese companies has collapsed.

Watch here: https://www.youtube.com/embed/N-AFq_wBGOY?feature=oembed

It is against this backdrop that the PBOC has stepped measures to support the economy, a few days after it slashed rates. The bank set the daily midpoint for the renminbi at 7.200, lower than the estimate of 7.3047. In a note, a Goldman Sachs analyst said:

“Ideally they’d want to cut rates without renminbi depreciation, but given how strong the dollar is and how high US interest rates are, you can’t do that.”

USD/CNY technical analysis

The USD/CNY exchange rate has been in a strong upward trend in the past few months. It has remained above the 25-day and 50-day moving averages and the important support level at 7.1178, the lowest level on July 17th. The pair has retested the support at 7.2662 (June 30th high).

Therefore, fundamentals suggest that the USD to CNY pair will continue rising as the outlook for the Chinese darkens. This is in line with my previous yuan forecast.

The post USD/CNY: Renmnibi is at risk as PBoC fights to save the currency appeared first on Invezz.

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