USD/CNY: Renminbi falters ahead of key China and US news

The renminbi crash continued this week ahead of key economic events in the United States and China. The USD/CNY soared to a high of 7.15 on Tuesday, the highest level since November last year. Its closely related USD/CNH pair jumped to 7.1698. In all, the Chinese yuan has plunged by almost 4% this year.

US inflation, Fed decision, China data

The renminbi has been in a strong downward trend in the past few months as hopes of China’s quick recovery fade. The most recent data showed that the most important parts of the economy like real estate and manufacturing are struggling. In this article, I noted that China’s exports and imports have retreated.

Therefore, traders will focus on the upcoming economic data from China. On Thursday, the statistics agency will publish the latest industrial production, fixed asset investments, and retail sales numbers. Economists believe that these numbers will show that the country’s growth worsened in May.

A weak Chinese yuan is not entirely bad for the country’s economy. As the biggest exporter in the world, a weaker renminbi makes it easier for its companies to do business. In the past, China was accused of intentionally devaluing its currency.

The biggest forex news on Tuesday will be the upcoming US consumer inflation data. Economists polled by Reuters predict that the country’s inflation dropped slightly in May, helped by the strong dollar and falling oil prices.

These numbers are notable because they will come a few hours before the Federal Reserve starts its two-day monetary policy meeting. In that meeting, analysts believe that the committee will decide to leave interest rates and quantitative tightening (QT) policies unchanged.

A hawkish Fed will likely push the USD to CNY pair higher. On the other hand, if the Fed delivers a relatively dovish rate, it will push the pair much lower.

USD/CNY technical analysis

USD/CNY chart by TradingView

The renminbi has been in a downward trend in the past few months. In the chart above, we see that the USD/CNY pair managed to flip the key resistance at 7.0239 into a support level on May 2022. The pair’s uptrend is being supported by the 50-day exponential moving average (EMA) while it is approaching the 78.6% retracement level.

Therefore, the path of the least resistance for the Chinese yuan is lower, with the next level to watch being at 7.20, the 78.2% retracement level. The initial support for the pair is at 7.1.