Home Forex News USD/CNY Exchange Rate Grinds Higher On Yuan Weakness

USD/CNY Exchange Rate Grinds Higher On Yuan Weakness

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  • Improving Industrial Activity
  • Contracting Chinese Exports
  • U.S NFP And Unemployment Rate

The Chinese Yuan weakened slightly against the U.S dollar, resulting in the USD/CNY exchange rate bouncing off one-week lows Thursday morning. The bounce-back came at the backdrop of China, printing impressive industrial data signaling that economic recovery is on course at the back of the shocks triggered by the COVID-19 pandemic.

Factory Activity

Recent Chinese factory activity surveys signal a faster than expected economic recovery as normalcy creeps in, following the COVID-19 disruptions. The Yuan has benefited a great deal from improving economic activity, having shed a significant amount of value against the dollar at the peak of the COVID-19 pandemic. The USD/CNY exchange rate has since retreated from 12-year highs and flirting with a key support level at 1-month lows.

The Yuan look set to strengthen against the dollar going forward, given the rate at which factory activity is improving and the U.S dollar weakening across the board. China’s PMI climbed to 51.2 in June from 50.7 reported in May. The improvement came at the back stronger domestic demand even as exports continued to fall.

Chines exports continued to contract, given the lockdowns imposed around the world that has resulted in the shutdown of borders and airspace. However, the country continues to account for a huge chunk of medical product supply across the globe. Personal protective equipment, such as face masks, has helped china sell more products overseas than expected.

A slowdown in exports has seen China solidify its position as the biggest importer of oil. The country continues to buy so much foreign oil at dirt cheap prices resulting in a massive traffic jam of oil tankers at sea. China has reportedly amassed 73 million barrels of oil in 59 different ships floating at sea. Net oil imports have more than quadrupled since the end of May.

USD/CNY Outlook

The USD/CNY exchange rate looks set to continue edging lower as the greenback continues to weaken across the board. The dollar has come under pressure as a string positive economic data continue to boost confidence about economic recovery.

The manufacturing sector in the U.S has continued to improve, as shown by the ISM manufacturing for June coming in better than expected at 52.6 in June from 43.1 in May. On Thursday, traders await the Non-Farm Payroll and Unemployment rate data that should influence dollar strength conversely USD/CNY exchange rate.

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