USD/CNY: yuan falls as China industrial profits point to a slow recovery

USD/CNY: yuan falls as China industrial profits point to a slow recovery
  • The USD/CNY rose to highest level since October last year after China released industrial profit data.
  • The data showed that industrial profits declined by 4.30% in April and by 27.9% from January to April.
  • The decline was slightly better than the 34.90% decline in March.

The USD/CNY rose slightly after the China Bureau of Statistics released slightly better industrial profit data. The pair is trading at 7.150, which is close to its yesterday’s high of 7.1425.

USD/CNY rises on relatively strong industrial profit

China industrial profits fall

China has been affected significantly by the current coronavirus pandemic. Its economy contracted for the first time in decades in the first quarter and the unemployment rate has moved upwards. Similarly, the financial sector has become increasingly vulnerable as many small companies have missed their payments.

But the economy appears to be turning itself around according to the industrial profit data released by the statistics office. The data showed that industrial profit declined by 4.30 per cent in April, which was better than the 34.90 per cent contraction experienced in March.

The profits slumped by 27.4 per cent between January and April. Also, that was better than the 36.7 per cent decline in the first three months. According to the bureau, profits of state-owned industrial companies, joint stock enterprises, private enterprises, and foreign-funded companies rose slightly in April.

USD/CNY rises as China recovers

Recent data from China show that the country is recovering. According to Caixin, the manufacturing PMI is close to 50, which is the highest of any major country.

Similarly, data released mid this month showed that fixed asset investment declined by 10.3 per cent, which was better than the previous decline of 16.1%. Also, industrial production rose by 3.9% in April after falling by 1.1% in March. Retail sales declined by 7.5% after falling by 15.8% in the previous month and small business confidence is rising, according to a survey by Standard Chartered.

Meanwhile, international trade is improving as exports rose by 3.5% in April while the trade surplus surged to a record $45.34 billion. And according to Bloomberg, crude oil consumption is rising, which is a sign that business activity is increasing.

Still, the economy recovery will likely take a longer time. Just last week, the government removed the target GDP growth for the year. That means that it will forego some key infrastructural investments as it reacts to the pandemic.

The national government and the PBOC have supported this recovery by providing trillions of dollars in liquidity.

In a statement yesterday, Governor Yi Gang said that the bank would focus on five key measures to support the economy. These actions include letting small firms to delay payment of interests, increase collateral-free credit, and improve government credit guarantees. It will also support bond sales and develop supply chain support.

CNY/USD technical outlook

USD/CNY technical forecast

The CNY/USD is trading at 7.150. On the daily chart, the price is at the highest it has been since October 2019. It is above the 100-day and 50-day exponential moving average while the RSI is close to the overbought level of 70. The pair may continue rising as bulls attempt to test the previous high of 7.183.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.
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