USD/CNY clinches new low as China manufacturing activity starts to cool

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at He lives in Nairobi with his wife, son,… read more.
on Aug 31, 2020
  • The USD/CNY pair dropped to a new low as investors reacted to mixed PMI data from China.
  • According to China Logistics, manufacturing PMI dropped to 51.0 from the previous 51.1.
  • The pair also dropped because of the overall weaker US dollar.

The USD/CNY pair declined as investors reacted to the mixed manufacturing and non-manufacturing PMI data from China. The pair is trading at 6.8481, which is a few pips above the January low of 6.8412. It is down by more than 4% in the past three months.

USD/CNY falls as China manufacturing cools

China manufacturing activity cooled in August

The Chinese manufacturing sector expanded in August as the country and the world economy continued to reopen. According to China Logistics, the manufacturing PMI was at 51.0 in August, a few points below the previous 51.1. Although the PMI declined, it is still above 50.0, which means that it expanded in August. Analysts polled by Reuters were expecting the PMI to rise to 51.2.

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According to China Logistics, indices of new orders, exports, backlogs, purchase prices, employment, and production increased in August. On the other hand, indices of supplier delivery times were unchanged while finished goods inventories, purchase volumes, and import index declined in August. This sent a sign that companies are still cautious about their expanding activities.

Meanwhile, the non-manufacturing PMI increased to 55.2 from the previous 54.2 while the composite PMI rose to 54.5 from the previous 54.1.

China’s manufacturing sector has been a bright spot for the country’s economy. After the manufacturing PMI dropped to a multi-year low of 35 in February, the industry has bounced back. In March, the PMI bounced back to 52.0. It has stabilised near that range since then.

The USD/CNY pair is also falling because of the overall weaker US dollar. The dollar index, which tracks the greenback’s performance against a basket of currencies, declined by 0.15% during the Asian session. This decline is probably because of the hawkish statement by Jerome Powell, the Federal Reserve chair. In his statement on Thursday, he said that the bank would leave rates unchanged for several more years.

USD/CNY technical outlook


The daily chart shows that the USD/CNY pair has been in a strong downward trend since May, when t peaked at 7.1775. The pair is below the 50-day and 100-day exponential moving averages. It is also below the Ichimoku cloud, which is usually a bearish move. Also, the Relative Strength Index (RSI) has moved to the oversold level. Therefore, bears seem to have prevailed, which means that the price is likely to continue falling. However, I suspect that the pair will find some support at 6.8400, which is the lowest level this year.

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