Home Forex News USD/CNY Under Pressure Amidst A Resurgent Yuan

USD/CNY Under Pressure Amidst A Resurgent Yuan

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  • Strengthening Chinese Yuan
  • Improving Chinese Economic Data
  • FED Report Focus

Chinese Yuan continues to bounce back after imploding at the backdrop of the COVID-19 pandemic in March. Even though the USD/CNY exchange rate remains subdued at 12-year lows, the Yuan has rebounded and found support above the 50-day moving average.

Chinese Yuan Resurgence

The bounce-back has come at the backdrop of weakness around the dollar as the global economy continues to bounce back in the aftermath of the COVID-19 fallout. Risk reversals on the Chinese Yuan have also subsided substantially with implied volatility gauges remaining below levels seen at the peak of the COVID-19 pandemic in March.

Chinese Yuan’s strength against the dollar has improved in recent trading sessions amidst an uptick in economic activity in China. Economic data has also shown signs of improvements after plunging to record lows in March.

China’s May consumer price index indicates that core inflation, which includes prices of food and energy prices, inched up 1.1% in May. On the other hand, consumer inflation was up by 2.4% from a year earlier, down from 3.3 % in April.

Improving economic activity should see new loans in China surge to CNY1600bn with the M2 money supply expected to indicate accommodative policy by ticking up 11.3%. Westpac also expects foreign investment in the Chinese economy to tick higher as economic outlook continues to edge higher.

FOMC Report

Improving outlook should continue to offer support to the Chinese Yuan exchange rate against the dollar. Even as the Chinese Yuan continues to bounce back, the U.S dollar remains on the defensive ahead of the much-awaited Fed policy meeting report.

Traders in the markets await the FOMC Economic projections later in the day. The report should shed more light on what the FED intends to do to revitalize the U.S economy as opening following the COVID-19 pandemic continues to gather pace.

The central bank has already approved a wave of stimulus plans to help support the battered economy. However, there are still concerns that the economy is far off from bouncing back as the labor market continues to face a string of challenges, with more than 20 million Americans remaining unemployed.

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