Softer China PMIs likely to lead to lower Q2 GDP and a weaker RMB
Tony Sycamore June 29, 2021 11:58 PM
A generally quiet session in Asia today with the main highlight the release of the National Bureau of Statistics (NBS) China June purchasing managers’ index data for the manufacturing and services sectors.
The NBS manufacturing PMI declined to 50.9 in June from 51.0 in May. A reflection of a slowdown in export growth momentum due to the Covid disruption on Shenzhen ports, nationwide safety inspections ahead of July 1st (the 100th anniversary of the Communist Party) as well as power and chip shortages.
The non-manufacturing PMI dropped to 53.5 from 55.2 as the Covid resurgence weighed on services in particular air travel, accommodation, and catering services.
As a result of the softer PMI data today, it is likely 2Q GDP will fall below 8% and bring with it policy fine-tuning, including faster local government bond issuance.
What does this mean for the RMB?
The RMB has been on the back foot against the US dollar since May after the PBOC pushed back against further appreciation via verbal guidance, a RRR hike on FX forwards, and higher QDII quotas.
The hawkish shift by the Federal Reserve two weeks ago sent the RMB lower again, as USDCNY rallied from below 6.4000 up to a high of 6.4895.
Technically the chart most important for USDCNY at this point is the monthly chart viewed below.
Should USDCNY close this evening (June 30) above 6.4600ish it would indicate the decline to the 6.3572 low was a false break lower below the trendline support from the 2014, 6.0402 low. And that USDCNY has completed a five-wave impulsive decline from the September 2019 high, above 7.1800
In this instance, the expectation would be for a stronger recovery in USDCNY towards 6.6000 in the coming weeks and traders may consider long USDCNY positions using the May 6.3572 low as the bullish reassessment level.
Source Tradingview. The figures stated areas of the 30th of June 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.