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Chinese Yuan Forecast: USD/CNH Eyes China CPI, PPI Figures in APAC Trade

Chinese Yuan Forecast: USD/CNH Eyes China CPI, PPI Figures in APAC Trade

Thomas Westwater, Analyst

Chinese Yuan, USD/CNH, Inflation, CPI, Covid - Talking Points

  • Chinese Yuan in focus ahead of China’s August inflation data points
  • CPI and PPI data likely to influence near-term PBOC policy decisions
  • USD/CNH trades within triangle while SMAs near bullish crossover

Thursday’s Asia-Pacific Outlook

Asia-Pacific trading looks set for another risk-off session on Thursday after Wall Street stocks sank and the safe-haven US Dollar rose during Wednesday’s New York session. Rising Covid-19 cases, valuation concerns, and central bank policy outlooks have investors stepping back from high-beta equities and risk-sensitive currencies. The Chinese Yuan and Australian Dollar will be in focus today, with China set to report inflation data for August.

The economic powerhouse will also report factory gate prices via the producer price index (PPI). Analysts expect the figure to cross the wires at 9.0% on a year-over-year basis, according to a Bloomberg survey. That would be unchanged from July’s figure. The same survey shows the consumer price index (CPI) staying steady at 1.0%.

China’s factories and goods producers are sparring with surging input costs due to Covid-19’s impact on global supply chains. Disruptions to farming, mining, and shipping ports sent commodities prices skyward earlier this year. The fact that those increased costs haven’t passed down to consumers yet leaves Chinese policymakers with some flexibility, however. Analysts are divided over whether the People’s Bank of China (PBOC) will ease policy in the coming months by cutting the reserve requirement ratio (RRR). Such a move would likely pressure the Yuan.

Earlier this year, Chinese officials authorized the release of metals, including iron ore and copper, from strategic state reserve stockpiles to help cool prices. Covid-induced growth concerns sank prices in recent months, which achieved China’s desired effect. The drop in copper and iron ore prices may help relieve pressure on steel producers. However, if producer prices come in over analysts’ expectations today, it may renew concerns in Beijing, especially if consumer prices rise in tandem.

While iron ore and copper prices are in retreat, other commodities continue to surge. Aluminum prices broke into a fresh 13-year high overnight. A military coup in the West African country of Guinea likely caused the breakout. The country provides a key ingredient for the production of aluminum. China is one of the largest importers of aluminum, with everything from buildings to airplanes relying on the metal.

USD/CNH Technical Forecast

The Chinese Yuan is weaker versus the US Dollar this week, with USD/CNH up nearly 0.50%. A Symmetrical Triangle pattern has taken shape since the currency pair put in a sharp drop from its 2021 high back in March. A break above or below resistance/support would likely lead to an extended directional move. A Golden Cross may form shortly, however, with the 50-day Simple Moving Average (SMA) tracking just below the longer-term 200-day SMA. If the SMAs intersect, it could lead to some bullish movement in prices.

USD/CNH Daily Chart

usdcnh chart

Chart created with TradingView

Chinese Yuan TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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