Chinese Yuan Strengthens On Optimism Over Trade Talks

Chinese Yuan Strengthens On Optimism Over Trade Talks
July 11, 2019

 

The Chinese yuan is strengthening midweek against its major G10 rivals even though vehicle sales fell sharply in June and inflationary pressure is lower than anticipated. The reestablished trade negotiations between the top two economies of the world are one of the reasons for the yuan’s strength against the greenback. Another reason that is attributed to the strength of the yuan is the plenty of stimuli announced by the federal government to boost the economy.

The Chinese Association of Automobile Manufacturers (CAAM) stated that car sales declined 9.6% y-o-y in June to 2.06 million units, representing a decline for the 12th straight month. Passenger automobiles and commercial vehicles fell 7.8% and 17.8%, respectively. Notably, the sales of electric cars rose 80% in June. For the past few years, the Chinese automobile sector was not performing well, with sales struggling to cross three million units since the end of 2017.

Yesterday, China’s National Bureau of Statistics stated that the consumer price index declined 0.1% m-o-m in June, representing the second contraction of this year. Analysts had anticipated the consumer price index to increase by 0.2%. In the past two years, the inflation rate crossed 1% only twice.

Investors will be closely watching for trade balance (difference between the value of goods exported and imported) data to be released early tomorrow. Economists are anticipating trade balance of 276 billion yuan (~$44.65 billion) for June, an increase from $41.66 billion in May.

In the meantime, financial markets were relieved due to reports of telephonic talks between the US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin with Chinese Vice Premier Liu He and Commerce Minister Zhong Shan. Both sides have made it clear that talks will continue in the days ahead.

Even though analysts do not anticipate the US-China trade war to end immediately, still, this is perceived to be positive. In fact, China is yet to firmly commit to the purchase of agricultural products from the USA.

In this regard, Larry Kudlow, a chief White House economic adviser, said: “The president, in a good-faith showing, has indicated that we will cease any new tariffs, any new tariffs. Now, President Xi is expected — or we hope, in return for our accommodations — to move immediately, quickly, while the talks are going on, on the agriculture front. It’s good faith, but it would be real transactions.”

The markets are hopeful that an agreement will be reached in the months ahead, providing certainty to the global economy.

Regarding the possibility of sorting out differences over trade practices, Kudlow, told, “It’s not impossible. Where there’s a will, there’s a way.”

Technically, the USD/CNY pair is making new daily lows, as shown in the image below. The stochastic RSI indicator is also in the oversold region. As a result, we can anticipate the currency pair to remain bearish in the short-term.

cny - technical analysis - 11th July 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Janine

Janine

Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be


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