USD/CNY: Yuan hovers near 7-month high as recovery extends

Written by: Crispus Nyaga
March 3, 2021
  • The USD/CNY is hovering near the lowest level since June.
  • Recent data showed that the Chinese manufacturing and services PMI grew.
  • The PBOC has also allowed the yuan to strengthen.

The USD/CNY price is wavering near its lowest level since June last year as the Chinese economic recovery accelerates. It is trading at 6.4646, which is almost 10% below its highest level in 2020.

USD/CNY
USD/CNY chart

China’s economic recovery

While China was the first country to report coronavirus cases, it was also the first major country to emerge from it. The economy expanded by 1.6% in the second quarter and by 3.2% in the third one. It expanded by 6.4% in the fourth quarter and by 2.3% for the year. In the same period, the Eurozone and the American economies declined by 6.8% and 4%, respectively.

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The Chinese recovery happened mostly because of the significant increase in external demand and the success of its pandemic response measures. 

This growth has continued this year, according to early economic numbers. On Sunday, data by Caixin showed that the manufacturing PMI declined to 50.6 from the previous 51.3. And on Monday, data by Caixin and Markit showed that the PMI fell to 50.9, which was the lowest level in nine months.

Today, Markit also published the services PMI numbers. The data revealed that the services PMI declined from 52.2 in January to 51.7 in February. The composite PMI fell from 52.0 to 51.5. A PMI reading of 50 and above is a sign that an industry is expanding.

While this week’s PMI numbers were relatively weak, analysts say that this was in line with historical precedence. In the past few years, manufacturing and services activity tends to cool-down in February as the country marks its Lunar new year.

The USD/CNY has also declined because of the actions of the People’s Bank of China (PBOC). Unlike in the past, the central bank has not intervened in the market to devalue the currency. This is partly because the overvalued yuan has not had a major impact on the country’s exporters. Also, according to the Wall Street Journal (WSJ), the country wants to boost the global status of the currency.

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USD/CNY technical outlook

USD/CNY
USD/CNY technical chart

The USD/CNY has been in a tight range in the past few days. The pair is slightly above the year-to-date low of 6.4241. It has also formed a narrow channel whose resistance level is at 6.4947. The price is also along the 25-day and 15-day exponential moving averages (EMA) while the Average True Range (ATR) has fallen. Therefore, the outlook for the pair is neutral, meaning it can break out in either direction. As such, you should use the risk management tools offered by your forex spread betting broker to manage risk.