Assessing USD/CNH, USD/CNY Outlook amidst Decelerating Chinese Economic Growth

On May 16th, 2023 around 00:03:41 ET, the USD/CNH exchange rate rose due to weaker-than-expected Chinese economic data. The rate rose to 6.978, which is close to the highest price it has been this year since March. The USD/CNY exchange rate also increased, reaching 6.96. Both onshore and offshore yuans have risen more than 2% from their lows in March.

Earlier this year, a major theme among market participants was that China’s economy would grow at a fast pace in 2023. While the economy is recovering, it is not growing as quickly as predicted. According to data compiled by the National Bureau of Statistics, fixed asset investment rose 4.7% in April, falling short of the median forecast of 5.5%. Additionally, industrial production rose 5.6% in April compared to expectations of 10.9%. This is a significant number since China is primarily an industrial country and production only increased by 3.6% year-on-year.

Additional data showed that retail sales in China were up 18.4% from a year earlier and 8.46% from March. However, analysts had expected retail sales to recover more quickly, supported by both domestic and tourist purchases. Last year’s lockdowns pushed the year-on-year numbers up by double digits. Furthermore, China’s unemployment rate remains significantly high after falling to 5.3% from 5.3% in April. If this trend continues, China’s growth this year is likely to be slower than the planned 5%.

China faces many risks, such as the real estate sector, which has supported growth over the past few years just picking up. Similarly, the country faces intense competition in the manufacturing sector. Just last week, data showed that consumer and producer inflation in China fell to its lowest level in two years.

In terms of technical analysis, TradingView’s USD/CNH chart showed that the exchange rate surged to 6.967 on May 16th. It managed to break above the major resistance line of 6.9650, the May 1 high. Moreover, the pair also broke above the 25-day and 50-day exponential moving averages (EMAs). The 6.9650 level is the upper side of the cups and handles pattern, which is typically a bullish sign. Therefore, the USD/CNH price may continue to rise, with buyers targeting the key resistance point of 7.000. If this happens, the USD/CNY pair will also surge due to the close correlation.

Forecasts for both USD/CNH and USD/CNY were first published on Invezz amid a slowing recovery in the Chinese economy.

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