Chinese yuan, PBOC, gross domestic product – talking points
- The Asia-Pacific market may recover after that Wall Street bounces
- China’s Q2 GDP is in focus as traders measure the direction of PBOC policy
- USD / CNY falls to a fresh monthly low but finds support from EMA
Thursday’s Asia-Pacific outlook
The Asia-Pacific trade session is set to be a busy day with a number of potentially difficult economic events. Australia’s June employment report crosses the wires at 1:30 GMT. Analysts are looking to add 20,000 jobs, while the unemployment rate remains stable. This is followed by China’s gross domestic product (GDP) for the second quarter, with data on industrial production, retail sales and investment in fixed assets. This means that the Chinese yuan and Australian dollar is particularly in focus today.
After the Wall Street indices partially recovered from Tuesday’s losses, stock markets in the region may move higher. Treasury revenues declined when Federal Reserve Chairman Jerome Powell told a parliamentary committee that the central bank still considers inflation to be temporary, despite the recent rise in the consumer price index. The leader of the federation said that the recovery is still far from achieving the goals. Technologically difficult Nasdaq-100 led shares higher, albeit only modestly, closing 0.17% higher.
Hong Kong Hang Seng Index (HSI) closed 0.63% lower on Wednesday. Regulatory fears, combined with concerns that China’s economic recovery will lose steam, have dampened sentiment. The People’s Bank of China (PBOC) recently announced that a reduction in the reserve requirement rate will take effect today. This step will inject 1 trillion yuan into the Chinese economy.
However, the PBOC signaled that this step should not be interpreted as deviating from a cautious policy stance. Although growth is expected to slow, China’s recovery is projected to outpace other major economies. The International Monetary Fund (IMF) estimates that GDP will increase by 5.6% in 2022. In fact, this week’s trade data showed an unexpected pick-up in export growth, which pushed China’s trade surplus to its highest level since January.
The yuan appreciated US dollar following optimistic trade data. USD/ CNH fell sharply last year and, although prices are modest, the currency is less than 2% from the 2018 slump. Chinese government bond yields continue to fall, reducing the Treasury spread. The 10-year gap between China and the US has narrowed to 161 basis points. If PBOC is further alleviated, this spread may decrease further. The yuan is likely to weaken as government debt becomes less attractive to foreign buyers, killing demand for the currency.
This means that today’s GDP printing can make a cool contribution to once again alleviating PBOC. Analysts expect GDP to exceed 8.1% in the second quarter, compared to 18.3% in the first quarter. Retail sales, industrial production and investment in fixed assets are also expected to decline. Economic indicators provide a key picture of China’s recovery, which could help guide markets to the next step in the PBOC.
USD / CNH Technical Outlook:
The yuan fell against Greenback overnight, pushing the fresh July lows. However, prices were supported by a rising 26-day exponential moving average with a Fibonacci retracement level of 38.2%. The lower decline can be seen as prices move back to trend from 2014 onwards. The highest value in July, 6.5,000, may be resisting when prices rise.
USD / CNH daily card
The chart has been created TradingView
CHINA Yuan TRADE RESOURCES
– Written by DailyFX.com analyst Thomas Westwater
Use the comments section or below to contact Thomas @FxWestwaterTwitter