Home Forex News USD/CNY Drops as Yuan Strengthens On Impressive PMI

USD/CNY Drops as Yuan Strengthens On Impressive PMI

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  • China Economic Recovery
  • China Impressive PMI
  • USD/CNY Outlook

The Chinese Yuan strengthened against the U.S Dollar, Tuesday morning, as better than expected economic releases affirmed hopes of China’s economic recovery. While the USD/CNY exchange rate is still at 12-year highs, the Yuan has gained ground against the greenback, in recent weeks, amid a string of positive economic releases.

Impressive PMI

Immediate data indicate that China’s economic activity steadied in June with manufacturing and services edging higher as economic recovery from COVID-19 disruptions continued to gain traction. The manufacturing purchasing manager’s index rose to 50.9 in June, slightly above 50.5 expected.

Source

Better than expected, PMI suggests that economic growth accelerated in June amidst recoveries in manufacturing as well as service delivery. The bounce-back came at the backdrop of the re-opening of the economy following COVID-19.

The International Monetary Fund has revised, upwards, its forecast for the Chinese economy in the wake of the opening of the economy. The ongoing recovery has helped offer support to the Yuan that came under pressure as the U.S dollar strengthened on being a safe-haven at the height of the pandemic.

The USD/CNY exchange has since started edging lower as the Yuan gains ground and takes advantage of any weakness in the dollar. Amidst the gains registered in recent weeks, the USD/CNY exchange rate remains susceptible to further gains as the dollar gets its footing on risk-aversion.

However, amid the better than expected PMI data, factory owners in China remain pessimistic about the prospects of overseas trade, which accounts for a big chunk of their businesses. The export orders component remains negative at 42.6 due to the shutdowns of borders worldwide. The employment metric also shows that manufacturers don’t expect to carry new hires in the coming months.

U.S Dollar Outlook

The U.S Dollar started the week on a roll, rallying as traders rushed to safe havens to counter the potential pitfalls resulting from a second wave of coronavirus infections. The U.S registering the biggest rise in coronavirus infections had initially spooked the markets, raising concerns about economic recovery.

U.S Dollar strength should be on the spot later on Tuesday as traders await FED chair, Jerome Powell, testimony. U.S Treasury secretary, Steve Mnuchin, is also scheduled to speak, sentiments likely to influence traders sentiments on the greenback conversely the USD/CNY exchange rate.

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