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USD/CNH: China cuts rates as more data show a weakening economy


AshishIG

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The Chinese yuan is falling as an array of economic indicators released this morning show China, the World's second-largest economy, has slowed further.

 
 Jeremy Naylor | Analyst, London | Publication date: Tuesday 15 August 2023 13:52

Industrial output rose 3.7% from a year earlier, a slower rate than the 4.4% in June and below expectations for a 4.4% increase. Retail sales rose 2.5%, down from a 3.1% increase in June and missing analysts' forecasts of 4.5% growth, while the unemployment rate rose one notch to 5.3%. As a result of all this the People's Bank of China cut its one-year MLF rate for the second time in three months, by 15 basis points to 2.5%. The uptrend in USD/CNH continues.

(Video Transcript)

The Chinese Yuan

The Chinese Yuan is on the way down again today, falling as an array of economic indicators across the Chinese economy released today show the world's second largest economy has slowed further. Let's take a look at the evidence that we've seen. Industrial output, it did rise 3.7% and in any other economy this would look good, but this is from this time last year, a slower rate than the 4.4% in June and below expectations of a 4.4% increase.

Chinese economy

Industrial sales, yep, again, still looking pretty good so far as other economies are concerned, but way short of expectations at 2.5%. 3.1% increase we saw in June. Analyst forecasts of a growth of 4.5%. Also, unemployment rate rising one notch to 5.3%. And the problems the Chinese economy has got, or the Chinese authorities, is the fact that this is useful employment most notably. And that is the part of the economy, part of the social structure, which is most mobile, which are most vocal, and which have been finding the going most tough.

The People's Bank of China

Less than an hour before the release of the batch of July data coming through in the Chinese economy, the People's Bank of China (PBOC),, cut its one year loan rate for the second time in three months, this time by 15 basis points to 2.5%. It also announced a few minutes ago China mulling cutting stamp duty to revise the stock market. Let's take a look at what's happening on the foreign exchange market.

USD/CNH

This is the USD/CNH, which we trade on the IG platform. And last week I drew this Andrew's pitchfork on here, which I felt was interesting because if you look at the lows that we had back on the 14th of July, which is where the pitchfork handle starts, that was then broken, as indeed it always gets done in an upward moving trajectory by the lows that we had back on the 27th of July. Hitting levels there not seen since the 16th of June. Since then, we've seen the bottom line of this pitchfork respected. We're now into the second band here, which gives me confidence. We've got a break here as well of the line of resistance on the 30th of June.

CAD

We're now there at levels not seen since the 4th of November. If you're long on this, your stock retains underneath the rising line of support down here. So you'll stop at about the 723 level. You could be a little bit more aggressive in your stock potentially to go up underneath this green dotted line here, which would be under today's CAD, which might be a little bit too close. But nonetheless, this trend is in place, and because we've seen recent highs not seen since the 4th of November there, I'm relatively confident that this continues to be a trend to watch out for.

It was a trade in a trend I caught up on last week, and it is now making money on the markets. It's not a trade recommendation, it's just an observation of what's happening and how you would structure a trade if you were to go long on this market. If you have been long so far, keep that stop loss coming up underneath the session lows to try and help you keep the profits locked in on this long trade on the dollar against the UN.

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