The USD/CNY exchange rate rose for the fourth consecutive day, reaching a high of 7.28, after the relatively weak Chinese economic data. The remninbi has dropped by almost 4% from its highest level this year.
China’s economy is not doing well
The USD/CNY pair continued rising afer China published a weak economic report that showed the economy was not doing well.
According to the country’s statistics agency, retail sales rose by 3.0% in November, missing the median estimate of 4.6%. It was also much lower than the previous increase of 4.8%.
Retail sales are an important part of the economy because of the crucial role that consumer spending plays. It has remained under pressure in the past few years as the housing market collapsed.
The industrial production figure came in at 5.4%, slightly higher than the previous 5.3%. Also, fixed asset investments slowed to 5.3%, missing the expected growth of 3.5%.
The housing market is also not doing too well as prices continued falling. New home sales dropped 0.2% from October, the third consecutive month of improving slowdown. These numbers offered a glimmer of hope that the sector was starting to stabilize.
Beijing has taken measures to boost the housing market that has collapsed in the past few three years. Just recently, the government slashed taxes for home purchases, while the Peoples Bank of China (PBoC) slashed mortgage rates.
These numbers mean that the second-biggest economy is still not doing well and that it will struggle to hit the 5% target set by Beijing. Most notable Wall Street banks like Bank of America, Goldman Sachs, and Morgan Stanley have all lowered their GDP estimates this year.
There is also a big risk as the Donald Trump administration comes in. Trump has pledged to be tough on China and has appointed people critical to the government in senior positions. Marco Rubio, one of the top China hawks, has been appointed to be the State Secretary.
Trump has also hinted that he will restart his trade war, a move that may affect Beijing in the longer term. He has promised to implement large tariffs on Chinese imports.
The next key catalyst for the USD/CNY pair will be the PBoC and Federal Reserve interest rate decisions. The PBoC is expected to leave the prime interest rate unchanged at 3.10% and the five-year one at 3.60%.
Economists expect that the Federal Reserve will also slash interest rates by 0.25% this week as woes in the labor market continue.
USD/CNY technical analysis
USD/CNY chart by TradingView
The daily chart shows that the USD/CNY exchange rate has been in a slow uptrend in the past few weeks. It has formed a golden cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other. This is one of the most bullish patterns in the market.
The pair has also moved to the key resistance point at 7.2758, which was its highest point in July last year. Therefore, a move above that level will point to more gains, with the next point to watch being at 7.3478, its highest swing in 2023.
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