USD/CNY forecast as China’s economy slowdown gains steam

August 01, 2023 10:01 AM AEST | By Invezz

USD/CNY forecast as China’s economy slowdown gains steam — Image source: Invezz

China stimulus hopes

One of the top economic themes of this year is the ongoing slowdown of the Chinese economy. These fears continued this week after another set of economic data from the country.

Data showed that the non-manufacturing PMI dropped from 53.2 in June to 51.5 in July. That decline was worse than the median estimate of 52.9. Further data revealed that the manufacturing PMI rose slightly from 49 to 49.2, higher than the estimated 49.2. The composite PMI fell from 52.5 to 51.1.

These numbers mean that the economy is indeed slowing. This slowdown is happening across all sectors of the Chinese economy. For example, recent data revealed that the country’s exports have retreated while the youth unemployment rate jumped to a record high.

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Therefore, there are signs that China is moving towards a balance sheet recession, which happens when most people and companies focus on reducing their debt. As a result, consumer spending has dropped in the past few months.

The USD/CNY pair declined as investors assessed the potential for a stimulus in the country. Some of the measures announced on Monday are meant to stimulate key industries like increasing consumer loans, building affordable homes, and encouraging the so-called light industry.

Still, it is unclear whether these measures will have a direct impact on the Chinese economy. Most analysts believe that the Chinese economy will grow by about 5% this year. While a 5% growth rate is strong, it is much lower than historical standards.

USD/CNY technical analysis

USDCNY chart by TradingView

The USD to CNY exchange rate has drifted downwards in the past few weeks. It has fallen from last month’s high of 7.2667 to 7.1428. The pair has dropped below the 25-period and 50-period moving averages.

At the same time, the Relative Strength Index (RSI) has moved below the neutral level of 50. The MACD indicator has moved below the zero line. Therefore, hopes of a new stimulus in China will likely drop to the next support level at 7.1186, the lowest level on July 14.

The post USD/CNY forecast as China’s economy slowdown gains steam appeared first on Invezz.

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