USD/CNY whipsaws as China economy makes modest recovery in May
- The USD/CNY pair was little changed after the Chinese statistics office released modest economic data.
- Chinese industrial production rose by 4.4% in May after rising by 3.9% in the previous month.
- Chinese retail sales declined by 2.8% in May after falling by 7.5% in April.
- Fixed asset investments declined by 6.3% in May, a modest improvement from the previous decline of 10.3%.
The USD/CNY pair is little changed today as traders focus on the improving Chinese economy. The pair is trading at 7.0855, which is higher than last week’s low of 7.0540.
Chinese retail sales make modest improvement
More people in China went out shopping in May, according to the country’s statistics office. Total retail sales declined by 2.8% to 3,197 billion yuan. This decline was slightly better than the previous decline of 4.7%, a sign that the sector is making a slow recovery.
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Total retail sales in the first five months of the year were 13,873 billion yuan, down by 13.5% on an annualised basis. This decline was not a surprise since little activity was going on in the first few months of the year.
Catering was the biggest laggard in March as sales fell by 18.9% to 301 billion yuan. At the same time, more people in China moved to shop online. The volume of online retail sales jumped by 4.5% year on year in May. In a statement, analysts at ING said:
“We believe that the unstable job market and healthcare concerns are the main factors slowing down the recovery. This means that even during the long holiday month of May, people were still spending carefully. So May‘s sharp drop in the contraction of retail sales could be a one-off from the Golden Week holiday.”
Fixed asset investments improve
The USD/CNY also reacted to the fixed asset investment data. The number measures the amount of money that companies and the government invested in fixed assets like buildings and machinery.
These investments declined by 6.3% in May after falling by 10.3% in the previous month. Analysts polled by Bloomberg were expecting the investments to fall by 5.9% during the month.
According to the office, investments in infrastructure fell by 6.3% year on year and 14.8% in the manufacturing sector. Fixed investments in real estate fell by 0.3% after falling by 5.5% in the previous month.
Investments in the primary industry were unchanged while those in high-tech industries increased by 2.5%.
These numbers showed that some investments were postponed as companies continued to assess the state of the economy.
Industrial production improves
According to the statistics office, industrial production in China improved slightly in May. The production rose by 4.4% in May, which was higher than the previous increase of 3.9%. Analysts polled by Bloomberg were expecting the production to rise by 5.0%.
The growth in industrial production was mostly due to an 8.9% increase in advanced technology and equipment. The output of excavating and shovelling machinery increased by 62.1% in May while that of microcomputers increased by22.3%.
Meanwhile, the index of services production rose by 1% in May after falling by 4.5% in the previous month. Also, consumer prices rose by 2.4% year on year, which was 0.9% below the growth in the previous month. On the other hand, factory gate prices declined by 3.7%, a decline of 0.6% from what was reported in April.
In May, the country’s imports and exports totalled 2.469 billion yuan, a decrease of 4.9% from April. This decline was mostly because of imports, which declined by 12.9% in May. Exports made a modest recovery, rising by 1.4%.
USD/CNY technical outlook
Please note: China does not have a floating exchange rate like other countries. Instead, the PBOC pegs the currency to the US dollar. It releases the fixing rate every day.
The USD/CNY pair has moved from a low of 7.0543 on Thursday to today’s high of 7.0897. On the four-hour chart, the price is slightly above the 23.6% Fibonacci retracement level. The price has also moved above the 50-day exponential moving average but is slightly below the 100-day EMA. The pair may continue rising as bulls attempt to test the 100-day EMA at 7.0945.