- Manufacturing Sector Contraction
- Coronavirus infections surge
- Dollar Strength As Safe-Haven
Downbeat economic numbers continue to exert pressure on the Chinese Yuan, which is already at 12-year lows against the dollar. The Yuan has weakened a great deal against the dollar with the USD/CNY surging to levels not seen in decades.
Weak Economic data
Weaker than expected economic data continue to validate fears that it will take years before the second-largest economy emerges from the shock of the COVID-19 pandemic. Fears of a second wave of coronavirus infections have seen parts of Beijing locked down, all but arousing fears as to when China’s economy will recover.
Investment in the manufacturing sector dropped 14.8% in the first five months of the year. Infrastructure investment was down by 6.3% even as property investment showed signs of rebounding having contracted by just 0.3%.
While Industrial production did pick pace in May, it still fell short of expectations on printing 4.4% growth compared to 5% growth projected by analysts. Retail sales report used to gauge the world’s largest consumer market remained at -2.8% improvement from 7.5% printed in April.
Improvement in economic activity had helped strengthen the Chinese Yuan against the dollar conversely, sending the USD/CNY exchange rate lower. However, given the uncertainty triggered by new cases of coronavirus infections in some major cities across China, the exchange rate looks set to tick higher as the dollar continues to rebound after two weeks of losses.
Looking ahead, economic data will determine a great deal of how the USD/CNY exchange rate moves throughout the week. While the latest data shows signs of improvements, it is still a shadow of What China was printing pre-coronavirus.
Weak demand at home and abroad has continued to take a toll on the economy, with the trade deficit widening significantly. Likewise, the Chinese Yuan looks set to remain under pressure as a new wave of coronavirus linked to the Xinfadi wholesale market continues to take a toll on the trader’s sentiments on the Chinese Yuan.
The dollar is likely to strengthen across the board as a safe-haven, a development that is likely to affirm the USD/CNY exchange rate at 12-year highs.