USD/CNY wavers after a surprise rise in Chinese consumer inflation

USD/CNY wavers after a surprise rise in Chinese consumer inflation
Written by:
Crispus Nyaga
10th August, 04:51
  • The USD/CNY pair wavered as investors reacted to the rising tensions between the US and China.
  • The pair is also reacting to a surprise increase in China's consumer inflation data.
  • The headline consumer inflation rose by 2.7% while factory gate prices declined by 2.4%

The USD/CNY pair is little changed today as traders react to the rising tensions between the US and China. The pair is also reacting to the relatively strong inflation data from China.

USD/CNY
USD/CNY rises slightly in reaction to US-China tensions and inflation

US-China tensions rising

The USD/CNY pair has been in a downward trend in the past few weeks. The pair has dropped from a high of 7.1768 in May to a low of 6.9335 on Thursday last week. This decline has mostly been because of the overall weakness of the US dollar and the strength of the Chinese economy.

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In recent weeks, the pair has reacted to the rising tensions between the US and China. The tensions restarted after a pause in January when the Trump administration shifted the blame on coronavirus to China. Trump has accused the country of not being transparent enough about the disease in early days.

Recently, the Trump administration has accused China of passing the Hong Kong security law and for human rights abuse in Xinjian.

On Friday, the Trump administration signed an executive order targeting 11 Chinese and Hong Kong officials, including Carrie Lam. The US has also put pressure on allies, like the UK, to abandon Huawei in their 5G migration.

It has also ordered China to close its embassy in Houston and is now considering banning Tik Tok in the country. On the latter, the US argues that the company could provide user data to Beijing officials. The company has denied those claims. Still, the US justifies the measure since China has banned some of the popular American companies like Facebook, Dropbox, and Twitter.

China inflation data

The USD/CNY pair is also reacting to China’s inflation data, released earlier today by the National Bureau of Statistics.

The data showed that consumer prices in China rose by 2.7% in July, boosted by a 13% increase in food prices. The vital pork prices rose by 86% while fresh vegetables increased by 8%. The increase in prices was attributed to shortages after floods ravaged some of the important agricultural regions in China. Economists polled by Reuters were expecting the CPI to jump by 2.6%.

Meanwhile, the producer price index (PPI) declined by 2.4% in July, which was better than the expected decline of 2.5%.

USD/CNY technical outlook

USD/CNY
USD/CNY technical forecast

The USD/CNY pair is trading at 6.9665, which is a few points above last week’s low of 6.9347. The price is below the 50-day and 100-day EMA while the RSI has moved to 40. Also, the price has been in a downward trend as evidenced by the descending trend line that is shown in blue. Therefore, I suspect that the downward trend will remain as bears attempt to move below last week’s low of 6.9347.

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