USD/CNY slides as China economy continues to fire on all cylinders
- The USD/CNY pair declined today after Caixin and Markit released the August services PMI numbers.
- The data showed that the services PMI was at 54.0 while the composite PMI rose to 55.1 in August.
- These numbers show that the Chinese economy is firing on all cylinders in the third quarter.
The USD/CNY pair declined as investors reacted to the strong services PMI data from China. It is trading at 6.8300, which is slightly higher than this week’s low of 6.8122.
China services sector makes progress
The Chinese economy has been firing on all cylinders. Last month, data from the country’s statistics office showed that the economy expanded by 3.2% in the second quarter. That made it the only major country to record an expansion of the economy. In contrast, the US, UK, and the Eurozone contracted by 32%, 20%, and 11.5%, respectively.
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The expansion is continuing in the third quarter. Data released by China Logistics and Caixin showed that the manufacturing PMI rose to 53 and 51.0 in August, respectively. And today, data by Caixin showed that the services PMI declined from the previous 54.1 to 54.0. Still, a PMI reading of 50 and above is usually a sign that an industry is growing.
According to Caixin, service providers in China reported having more orders and having sufficient capacity to complete these orders. That was partly because most of them reported having more workers to do the work. These companies also expect to have more orders in the next 12 months. In a statement, Dr. Wang Zhe of Caixin said:
“The Caixin China General Services Business Activity Index came in at 54 in August, almost the same as the previous month’s 54.1. The ongoing resumption of work and normalization of market demand continued to promote the post-epidemic economic recovery.”
China composite PMI gains
Meanwhile, according to Caixin, the composite PMI rose to 55.1 in August from the previous 54.5. Composite PMIs are weighted averages of comparable services and manufacturing indices. In a statement, Zhe said:
“The Caixin China Composite Output Index stood at 55.1 in August, remaining on an upward track amid improvements in the manufacturing and services sectors. Employment in the services sector expanded for the first time in seven months.”
Analysts cite several reasons for the continued growth of the Chinese economy. First, the country’s central bank has brought interest rates to historic lows, which has incentivised people and companies to increase their borrowing.
Second, the country has been relatively successful in managing the coronavirus pandemic. According to Worldometer, the country has reported just 85.077 cases and just 4,634 deaths. That is a significantly low figure compared to other comparable countries.
Third, the country has benefited from increased demand from other countries like the United States and Europe.
USD/CNY technical outlook
The weekly chart shows that the USD/CNY pair has been in a downward trend for the past six consecutive weeks. During this period, the price has fallen from a year-to-date high of 7.1765 to the current level of 6.8300. The price has moved below the 50-day and 100-day exponential moving averages while the RSI has fallen to the lowest level since March 2018. Therefore, it seems like bears are in total control, which will likely push the price to the next support at 6.8200.