USD/CNY, USD/CNH: Renminbi outlook as China exports plunge

The USD/CNH and USD/CNY exchange rates drifted upwards on Tuesday after another set of worrying data from China. The USD/CNH pair drifted upwards to 7.23, the highest point since July 19th while the USDCNY rose to 7.2176. 

Renminbi pressured

Concerns about the Chinese economy continued on Tuesday morning after China published weak trade numbers. In a report, the country’s exports plunged by 12.4% in July, higher than the median estimate of 5.6%. They had dropped by 6.8% in the previous month.

Imports, on the other hand, dropped by 14.5% in July, also lower than the expected decline of 9.8%. Like exports, imports slipped by 6.4% in June. China’s imports and exports have shrunk in the past nine straight months. Despite the decline in volume, the trade surplus jumped to $80 billion.

These numbers mean that the Chinese economy is not improving since trade plays an important part. Worse, other components of the country like real estate are also underperforming as well. It is also on the verge of moving into a deflation era where prices are falling.

As a result, China has started implementing some stimulus packages in a bid to save the economy. Most of these measures are meant to stimulate consumer spending, which forms a core part of the economy.

Most analysts have downgraded their estimates for the Chinese economic growth this year. They expect that the economy will expand by about 5%. While this is a good number, it will be lower than historical standards.

USD/CNH technical analysis

USD/CNH chart by TradingView

On the 4H chart, we see that the USD/CNH pair formed a double-bottom pattern at 7.1228 on July 14th and July 27th. In technical analysis. This pattern is usually a bullish sign. It is now nearing the neckline of this pattern at 7.2370, the highest level on July 19th. 

The USDCNH pair’s rally is being supported by the 25-day and 50-day exponential moving averages (EMA). Further, the Relative Strength Index (RSI) has moved above the neutral point. 

Therefore, the outlook for the pair is bullish, with the next reference level being at 7.2898, the highest point on June 30th. If this happens, the USD/CNY exchange rate will also keep rising as buyers target the key resistance point at 7.2667.