USD/CNY crashes to 2018 lows as China trade surplus hits record high

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Dec 7, 2020
  • The USD/CNY pair dropped to the lowest level since 2018 after China released strong trade numbers.
  • Exports increased by more than 22% on a year-on-year basis while imports rose by 4.5%.
  • As a result, the trade surplus increased to more than $75 billion.

The USD/CNY is under pressure today as the market reacts to the impressive trade data from China. The pair is trading at 6.5360, which is the lowest it has been since June 2018.

USD/CNY
USD/CNY drops after strong China data

China impressive trade numbers

Recent data from China provide more evidence that the country’s economy is firing on all cylinders. The country became the first major economy to emerge from the pandemic when it expanded by 5.2% in the second quarter. It continued this trend in the third quarter.

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Last week, data from China showed that the country’s manufacturing and non-manufacturing PMIs continued to rise in November.

And today, data from the country’s statistics office showed that the country’s exports and imports did well in November.

The exports rose by 21.1% on a year-on-year basis, the fastest increase in three years. It was also a strong jump from October’s increase of 11.4% and better than the Bloomberg estimate of 12%. November was the sixth consecutive months of gains.

Imports increased by 4.5% in November from 4.7% a month before. This increase was slightly below the consensus estimate of 7%.

As a result, the Chinese trade surplus rose to more than $75.42 billion in November, which is the highest figure on record. In October, the Chinese trade surplus was about $58.4 billion.

These numbers show that China has capitalised on lockdowns in Western countries to boost its export machine. They also show that the US trade wars have not had any impact on Chinese businesses.

Notably, the upbeat data comes two days after the United States released weak nonfarm payroll numbers. In total, the US economy added just 245,000 jobs in November, down from 610,000 in the previous month. That was significantly below the 440,000 that Wall Street was expecting.

USD/CNY technical outlook

USD/CNY
USD/CNY technical chart

Turning to the weekly chart, we see that the USD/CNY pair formed a double-top pattern at 7.1830. From May this year, the pair has fallen by more than 9%, making it the strongest performance of the yuan in years. Notably, the Chinese central bank has not moved-in to reign-in on the stronger yuan.

The pair is also below the 25-week and 50-week moving averages while the Relative Strength Index (RSI) has dropped to the lowest level since January 2018. As you will find in our forex trading course, this situation is known as being oversold.

Therefore, in the near term, the path of least resistance for the USD/CNY seems lower. However, because of the oversold conditions, there is a possibility that a pullback will happen in the near term.

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