The Chinese yuan fell against the greenback despite the release of upbeat manufacturing data by IHS Markit. The uptrend, however, was limited due to the contraction in business activity in Chicago. The unconfirmed news stating that the US is studying options to restrain its residents from investing in Chinese companies is one of the main reasons behind the yuan’s weakness. The USD/CNY pair rose from a low of 7.1197 to a high of 7.1498 in the past 24 hours.
Despite the US-China trade issue, in September, China’s manufacturing industry grew at its fastest pace since 2018. According to IHS Markit, the Caixin factory Purchasing Managers’ Index increased to 51.4 in September, from 50.4 in August. Any reading above 50 indicates expansion. The reported figure was the highest since February 2018.
Furthermore, the National Bureau of Statistics disclosed a contraction in the factory sector in September. But, the manufacturing PMI moved up a few notches to 49.8, from 49.5 in August.
New orders rose at the quickest pace since March 2018. However, new export orders declined slightly in September. Companies opined that the ongoing China-US trade issue continues to affect overseas sales. For the second successive month, the employment level remained unchanged in September.
Outstanding business increased in the middle of stagnant payrolls and rise in orders. The increase in volumes of fresh work encouraged companies to increase production in September. The growth rate was the fastest since August 2018.
Input buying increased for the third consecutive month, and stocks of purchased items increased in a small manner. Input costs rose at the end of Q3 2019, while the output cost remained mostly unchanged from the earlier month.
Nevertheless, goods producers continue to remain less optimistic about future output as concerns linger over the impact of the US-China trade dispute.
Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, highlighted the robust domestic demand. Zhong said, “Growth in manufacturing demand was mainly driven by the domestic market as China-U.S. trade conflicts still restrained overseas demand.”
In the US, a report published by MNI indicators showed that Chicago-area business activity contracted unexpectedly in September. MNI Indicators stated that its Chicago business barometer plunged to 47.1 in September after bouncing to 50.4 in August. A reading below 50 signals contraction in Chicago-area business activity.
The index signaled a contraction for the third successive time in four months, while economists had anticipated a small decrease to 50.20. The production index also plunged by 7.60 points to 40.40 in September, the lowest level since May 2009. The new orders index also fell by 7.60 points to 48.50.
The weak economic data from both countries indicate that the USD/CNY pair would remain range-bound in the short-term.
Technically, the USD/CNY pair is facing strong resistance at the 7.1437 level. Additionally, the stochastic indicator is declining towards the bearish zone. As a result, we can anticipate the currency pair to move down in the short-term.
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.
