USD/CNY: Renmnibi outlook as China trade surplus spikes

The USD/CNY exchange rate moved sideways on Friday as traders assessed the latest US consumer inflation data. It also reacted to December’s Chinese inflation and trade numbers. The pair was trading at 7.1632, a few points below the YTD high of 7.18.

China inflation and trade numbers

The biggest forex news story of the week came out on Thursday when the US published strong inflation numbers. According to the Bureau of Labor Statistics (BLS), the headline Consumer Price Index (CPI) jumped from 3.1% in November to 3.4% in December. Core inflation retreated slightly to 3.9%.

These numbers, together with last week’s strong non-farm payrolls, will likely complicate the next actions by the Federal Reserve. In its last monetary policy meeting, the Fed pointed to three rate cuts this year, with most analysts expecting them to start in March.

Therefore, these reports mean that the Fed has no reason to start cutting rates soon. Besides, the economy is doing well and inflation remains high. This trend could continue if the ongoing crisis in the Middle East intensifies.

The other important USD/CNY news came from China. In a report, the government said that the headline inflation dropped by 0.3% on a YoY basis in December after falling by 0.5% in the previous month. Inflation rose slightly by 0.1% on a MoM basis, meaning that the country is moving away from deflation. 

Meanwhile, China’s trade surplus widened in December as exports bounced back. Exports grew by 2.3% in December while imports rose by 0.2%. Its exports were higher than the median estimate of 1.7% while the trade surplus widened to over $75.34 billion.

China’s economy is sending mixed signals. For one, iron ore price has continued dropping, pointing to weak demand from the country. At the same time, there are signs that the industrial and retail sector are seeing modest improvements recently.

USD/CNY technical analysis

USD/CNY chart by TradingView

Turning to the daily chart, we see that the USD to CNY exchange rate has moved sideways in the past few days. In this period, the pair has remained slightly below the 50-day Exponential Moving Average (EMA). It has moved slightly above the key support level at 7.12, the lowest swing in July.

Therefore, the outlook for the pair is neutral with a bearish bias, with the next point to watch being at 7.12. This retreat will likely happen as investors focus on China’s economy amd assess the next Fed actions.