USD/CNY: What next for the yuan as Chinese recovery stalls

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 wife, son,… read more.
on May 17, 2021
  • The USD/CNY pair is in a tight range after the relatively weak data from China.
  • The Chinese retail sales rose by 17.7% in April after rising by 34% in March.
  • Industrial production slowed because of supply challenges.

The USD/CNY pair was little changed on Monday after the relatively mixed economic data from China. It is trading at 6.440, which is 0.50% above last week’s low of 6.400.

Chinese yuan
Chinese yuan chart

China economic recovery slowing?

The USD/CNY wavered after a data dump by the Chinese statistics agency. Data revealed that factory output rose by 9.8% on a year-on-year basis. This was in line with what analysts were expecting but slower than the previous month’s increase of 14.1%. 

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This slowdown was mostly because of logistics issues since mosy shipping companies have been extremely busy as global demand rises. At the same time, the country’s companies are facing a surge in raw material prices as commodities soar. For example, the prices of most commodities like iron ore, lumber, and copper has more than doubled in the past 12 months.

Meanwhile, retail sales rose by 17.7% in April after rising by 34.2% in March. Fixed asset investments, an important measure of GDP rose by 19.9% in April, lower than the previous 25.6%. Still, analysts at ING believe that the economy will rise by 5.5% in the second quarter of this year. They said:

“The main uncertainty in our forecast lies in semiconductor chip shortages, which may affect car sales, though but no big impact has been seen so far. Another uncertainty is the deleveraging in Fintechs, which may slow down credit growth.”

Later this week, the USD/CNY will react to the ongoing worries about inflation in the United States. The Federal Reserve will publish the FOMC minutes of the past meeting while top retailers like Walmart, Kohls, Home Depot, and Lowe’s will publish their quarterly results.

USD/CNY technical outlook

USD/CNY
USD/CNY technical chart

The USD/CNY has been in a strong downward trend in the past few weeks. The pair has dropped by more than 3% from its highest level in March. On the daily chart, it is hovering near the lowest level this year. It is slightly below the dots of the Parabolic SAR and between the lower and middle lines of the Bollinger Bands. Therefore, unless the PBOC intervenes, there is a possibility that the pair will soon have a bearish breakout. This price action will be confirmed if the price moves below the YTD low at 6.422.

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