- China Economic Recovery
- China PMI
- COVID-19 Disruptions
USD/CNY exchange rate is trading near a key support level as a resurgent Chinese Yuan continues to pile pressure on the U.S dollar that is trading at 12-year highs. Recoveries in the Chinese manufacturing sector are the latest catalyst fuelling bids around the Yuan.
Improving Manufacturing Activity
Data signaling that manufacturing activity improved in June continues to fuel optimism about Chinese economic recovery after one of the biggest contractions in recent years. Firms in mainland China are ramping up production levels as the total number of new businesses continues to increase.
Caixin/Markit manufacturing Purchasing Managers Index came in at 51.2 signaling that China’s manufacturing activity expanded in June, beating expectations in the process. Manufacturing activity improved significantly as most of the country had the COVID-19 pandemic under control.
Improvements in economic activity continue to offer support to the Chinese Yuan, which has weakened significantly against the Dollar in recent months. The USD/CNY pair has since retreated to 1-month lows from 12-year highs as traders remain optimistic about China’s economic recovery.
Amidst the improving manufacturing activity, lockdowns around the world pose a significant danger to the Chinese economy. New export orders continue to fall amid weak external demand as the epidemic continues to affect most of China’s trading partners.
External demand for Chinese goods should remain low due to COVID-19 lockdowns and social distancing measures worldwide. Likewise, domestic demand has been weighed significantly, given the social distancing measures put in place to curb the spread of the deadly virus.
U.S Dollar Outlook
USD/CNY exchange rate will depend a great deal on how the U.S dollar reacts to the second wave of coronavirus infections. Similarly, the outcome of economic data will have a huge sway on the trader’s sentiments likely to influence dollar strength.
A spike in risk aversion in the market due to the second wave of infections in the U.S should continue to fuel demand for the U.S dollar likely to push the USD/CNY exchange rate higher.
On Wednesday, traders await the release of the Markit PMI data in the U.S. Similarly, focus will be on the ISM manufacturing data likely to influence dollar strength conversely USD/CNY exchange rate.