Chinese Yuan Mixed on Poor Economic Data

Jun 06,2019 03:57   Source:Earnforex

Various yuan banknotesThe Chinese yuan is mixed midweek on poor economic data. But the biggest development for the yuan is that it is nearing the 7 mark against the US dollar. The federal government has hinted that it will take action to prevent the yuan from reaching that threshold. The last time the yuan crossed 7 was in December 2016.

On the data front, the Caixin Composite Purchasing Managers’ Index (PMI) came in at 51.5 in May, down from 52.7 in April. The market had penciled in a reading of 52.4. Anything above 50 indicates expansion. The Caixin Services PMI clocked in at 52.7 last month, down from 54.5 in April. The median estimate was 54.

Investors will now look ahead to foreign exchange reserves for May, which are anticipated to total $3.1 trillion. In April, foreign exchange reserves were $3.095 trillion.

Next week will be a major week for the world’s second-largest economy because a plethora of data will be released. This will include trade figures, automobile and retail sales, inflation, and industrial output.

The onslaught of putrid data has many worrying that the national economy is weakening, but President Xi Jinping assured that those who are bears will be proven wrong.

Looking into the future, China’s economy bears the supporting conditions for stable, healthy and sustainable growth. Domestic consumption remained the main driver of growth.

Xi, who is in Russia to meet with President Vladimir Putin, cited growth in employment and personal income and the stabilization of prices as reasons for his optimism.

There is a lot of talk in the forex market about the yuan sliding below 7 against the dollar because there are real economic consequences for China When it last occurred, there was a huge increase in capital outflows and market sentiment soured.

Pan Gongsheng, chief of the State Administration of Foreign Exchange (SAFE), suggested that the financial regulatory agency would not allow the yuan to fall below that crucial level. But markets are expecting it to happen, which would lead to one of three scenarios: the US government would have carte blanche to accuse Beijing of being a currency manipulator, there would be a spike in capital outflows, and the Chinese government would institute capital controls.

The USD/CNY currency pair rose 0.01% to 6.9090, from an opening of 6.9083, at 20:07 GMT on Wednesday. The EUR/CNY fell 0.27% to 7.7557, from an opening of 7.777.


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