Yuan Weakens On 17-1/2 yr. Low Industrial Growth

Yuan Weakens On 17-1/2 yr. Low Industrial Growth
September 17, 2019

 

The greenback strengthened 0.27% against the Chinese yuan yesterday after the National Bureau of Statistics (NBS) reported the weakest rate of industrial production growth in 17 ½ years. More importantly, the retail sales also rose at lower-than-anticipated growth in August. From a low of 7.04378, the USD/CNY pair rose to a high of 7.06901 in the past 24 hours.

In August, China’s industrial production grew 4.4% on a y-o-y basis, representing the weakest growth since February 2002. The government stated that it would be an enormous task to ensure a growth rate of over 6% as the economic growth is affected by trade tensions with the US and slowing domestic demand. Economists had anticipated the growth rate to improve to 5.2%, from 4.8% in the previous month.

While manufacturing and mining output increased 4.3% and 3.7%, utility production grew 5.9%. Retail sales increased 7.5% y-o-y in August, following a 7.6% growth in July. Economists had anticipated sales growth of 7.9%. In 2Q19, China’s economy grew at the slowest rate in 27 years. Notably, GDP grew 6.2% on a y-o-y basis.

During the weekend, China’s Premier Li Keqiang had expressed optimism over economic growth. However, the Premier acknowledged that maintaining a growth rate of over 6% is difficult for an economy like China.

The US-China trade issue turned from bad to worse when US President Donald Trump slapped new import duties on $300 billion worth Chinese goods in August.

That was in addition to calling China a “currency manipulator” in early August after the yuan dropped below the psychological level of seven against the greenback for the first time since 2008. Following the decline of the yuan below seven on August 5th, the US Treasury assigned currency manipulator status to China after a span of 25 years.

On the first of this month, the earlier announced import duties on $112 billion worth Chinese goods took effect, along with the tariff on $250 billion worth of imports. Furthermore, the Trump administration had warned further import duties on Chinese goods from October 1st and December 15th.

China responded by slapping import duties on some of the US goods and warned more. In the meantime, to prevent the economy from further slowing down, the People’s Bank of China slashed reserve requirement ratio for the third time on September 7th.

Economists also anticipate the PBoC to cut interest rates this week. In other economic data released yesterday, fixed asset investment grew 5.5% y-o-y in January to August, slower than the 5.6% forecast by analysts.

Property investment grew 10.5% in the first eight months of the year, versus 10.6% in the January to July period. The national urban unemployment rate was 5.2% in August, down from 5.3% in July.

According to NBS, a significant rise in global uncertainties and prominent structural contradictions in the domestic economy are creating downward pressure on the economy.

Commenting on the poor August industrial production and retail sales data, ING economist Iris Pang said: “The August data is very weak even with massive infrastructure investment support. Even if there is continuous fiscal stimulus, the damage from the trade war will continue to be significant, and will hurt exporters further.”

Economists anticipated the Chinese government to announce further stimulus measures. The financial institution slashed its growth outlook for 2019 to 6%, from 6.3%.

The weak economic data, stimulus measures, and unresolved trade dispute with the US are expected to keep the yuan weak in the days to come.

Technically, the USD/CNY pair has consolidated very well at 7.06 levels. The Chaikin money flow indicator is also making new highs. As a result, we can expect the currency pair to remain bullish in the short-term.

yua - technical analysis - 17th Sept 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.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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