The USD/CNY exchange rate held steady this week in a low-volume environment because of the New Year celebrations. The renminbi traded at 7.3000 on Tuesday morning, its lowest level since November 2023. It has dropped in the last 13 consecutive weeks and is slowly approaching its lowest level on record.
Renminbi amid slow China growth
The renminbi has remained under pressure this year as concerns about the Chinese economy continued.
Data released by Beijing’s authority showed that the economy continued to slow down in 2024. It expanded by 4.6% in the third quarter, helped by the aggregate demand. That was a slower growth rate compared to the second quarter’s growth rate of 4.7% and Q1’s 5.3%.
Beijing was forced to implement large stimulus measures to hit the 5% growth target. Some of these measures, including the $1.4 trillion support to states, will likely take time to affect the economy.
Analysts believe that China will not hit the 5.0% target. Goldman Sachs predicts that the economy will grow by 4.9% this year, while most other banks anticipate the economy growing by between 4.6% and 4.9%.
Economic data released on Tuesday showed that China’s economy continued to normalize. The manufacturing PMI dropped slightly from 50.3 in November to 50.1 in December, missing the estimated 50.3.
The non-manufacturing PMI rose from 50.0 to 52.2, higher than the median estimate of 50.2, while the composite figure rose from 50.8 to 52.2.
These numbers indicate that the economy is doing relatively well, as figures of 50 and above indicate expansion.
The USD/CNY exchange rate has risen as concerns about the upcoming trade war between the US and China continued. Donald Trump pledged to be tough on China and appointed hawks like Marco Rubio and Tim Walz in key positions. He has also hinted that he will add over 20% tariffs on Chinese goods.
Trump is mostly concerned about the growing trade deficit between the US and China. As such, he believes that making Chinese goods more expensive will encourage manufacturing back home, an impossible situation.
China will always be competitive because of its advanced manufacturing skills and low costs. As such, these tariffs will hurt Americans more by raising their prices.
The People’s Bank of China (PBoC) has maintained a highly dovish tone as it slashed interest rates and flooded the economy with money. It left rates unchanged this month to keep ammunition for future pressure. It maintained rates steady at 2% and then withdrew $158 billion from the financial market.
USD/CNY technical analysis
USD/CNY chart by TradingView
The USD/CNY pair has also rallied because of the strong US dollar, which has soared to its highest level since November 6. It has moved above the key resistance level at 7.2768, its highest level on July 8.
The pair has remained above all moving averages, while the Relative Strength Index (RSI) has drifted upwards and is nearing the overbought level of 70. Therefore, the path of least resistance for the renminbi is downwards. The next point to watch is the all-time low of 7.3450.
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