USD/CNH, USD/CNY forecast as China economy recovery falters

on May 16, 2023
  • The USD/CNH and USD/CNY pairs jumped on Tuesday morning.
  • China reported weaker-than-expected fixed investment and retail sales numbers.
  • Industrial production expanded at a slower pace than expected.

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The USD/CNH exchange rate drifted upwards after the relatively weaker-than-expected China economic data. It jumped to 6.978, which was close to the highest point since March this year. The same is true with the USD/CNY, which rose to 6.96. The onshore CNY and offshore CNH have jumped by more than 2% from the lowest point in March.

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China growth falters

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A key theme among market participants earlier this year was that the Chinese economy would grow at a fast pace this year. While the economy is recovering, the growth has been at a faster pace than previously expected.

Data compiled by the National Bureau of Statistics showed that fixed asset investments jumped by 4.7% in April, less than the median estimate of 5.5%. 

Similarly, the industrial production jumped by 5.6% in April, lower than the expected 10.9%. This is an important figure since China is primarily an industrial country. Production jumped by just 3.6% on a year-on-year basis. 

Additional data revealed that China’s retail sales rose by 18.4% from a year earlier and by 8.46% from March. Analysts were expecting a much quicker rebound in retail sales, helped by both domestic and tourism purchases. The year-on-year figures jumped by double digits because of last year’s lockdowns.

China’s unemployment rate remains substantially high even after it slipped from 5.3% to 5.3% in April. Therefore, if this trend continues, China will likely grow at a slower pace than the planned 5% this year. 

China faces numerous risks. For example, the property sector that supported growth in the past few years is just crawling. Similarly, the country is facing strong competition in the manufacturing sector. Just last week, data showed that China’s consumer and producer inflation tumbled to a two-year low.

USD/CNH technical analysis

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USD/CNH chart by TradingView

The USD to CNH exchange rate jumped to 6.967 on Tuesday after the latest economic data from China. It managed to move above the key resistance point at 6.9650, the highest point on May 1. Further, the pair has jumped above the 25-day and 50-day exponential moving averages (EMA). 

The 6.9650 level was the upper side of the cup and handle pattern, which is usually a bullish sign. Therefore, there is a likelihood that the USD/CNH price will continue rising as buyers target the key resistance point at 7.000. If this happens, the USD/CNY pair will also jump because of the close correlation.


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