07/31/2023 20:01:00 ET
The USD/CNY exchange rate trended lower amid persistent fears of a slowdown in the Chinese economy. The pair fell to a low of 7.15 on Monday, off the July high of 7.2667.
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A key theme this year is the ongoing slowdown in the Chinese economy. Those fears continued this week after more economic data from the country.
Data showed that the non-manufacturing PMI fell to 51.5 in July from 53.2 in June. That drop was worse than the median estimate of 52.9. Further data showed that the manufacturing PMI rose slightly to 49.2 from 49, up from an estimated 49.2. The composite PMI fell to 51.1 from 52.5.
These figures suggest that the economy is indeed slowing down. This slowdown is taking place in all sectors of the Chinese economy. For example, recent data showed that the country’s exports have fallen while the youth unemployment rate has risen to a record high.
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As such, there are signs that China is headed for a balance sheet recession, which will come when most people and businesses are focused on deleveraging. As a result, consumer spending has declined in recent months.
The USD/CNY pair fell as investors assessed the potential for an economic stimulus in the country. Some of the measures announced on Monday are intended to boost key industries, such as increasing consumer credit, building affordable housing and boosting so-called light industry.
However, it is unclear whether these measures will have a direct impact on the Chinese economy. Most analysts expect the Chinese economy to grow by around 5% this year. A growth rate of 5%, while strong, is well below historical standards.
USD/CNY technical analysis
USDCNY chart by TradingView
The USD-CNY exchange rate has been falling for the past few weeks. It has fallen to 7.1428 from last month’s high of 7.2667. The pair has fallen below the 25 and 50 period moving averages.
At the same time, the Relative Strength Index (RSI) has fallen below the neutral 50 level. The MACD indicator has fallen below the zero line. Therefore, hopes for a fresh stimulus in China are likely to drop to the next support level at 7.1186, the lowest from July 14th.
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