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USD/CNH Spikes After Soft Chinese Data, Trade War News in Focus

USD/CNH Spikes After Soft Chinese Data, Trade War News in Focus

2018-08-27 01:54:00
Megha Torpunuri,
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Talking Points – INDUSTRIAL DATA, PBOC, YUAN, TRADE WARS

  • Offshore Yuan fell after weak industrial profits reports
  • PBOC intervention to stem widespread Yuan selloffs
  • $16b reciprocal tariffs, resumption of trade talks in focus next

The offshore Chinese Yuan fell against the greenback as local economic data crossed the wires during Monday’s trading session. Year-over-year industrial profits for July clocked in at 16.2%, a decrease from June’s 20.0%. This underperforming economic data, similar to the fall in July’s retail sales and the uptick in China’s jobless rate, could potentially indicate the negative effects of President Trump’s tariffs on Chinese goods.

USD/CNH 5-Minute Chart

USD/CNH Spikes After Soft Chinese Data, Trade War News in Focus

Weakening economic activity has contributed to widespread Yuan selling, leading the People’s Bank of China to intervene to defend the currency. Recently, the PBOC had to step in when USD/CNH broke above 6.90 twice in order to tighten offshore liquidity. Furthermore, the local monetary authority also hiked the reserve require ratio on foreign exchange forwards in order to help the unit.

Looking ahead, uncertainties regarding the US China trade war continue to weigh on the currency. Vice Ministers from each country are set to meet in late August and resume trade negotiations, although the last round of trade talks ended with no clear consensus. In addition, US tariffs on $16 billion of Chinese goods went into effect on August 24th, with China quick to follow with reciprocal restrictions and a threat to file a complaint with the World Trade Organization. Volatility for the currency pair may be in store next.

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--- Written by Megha Torpunuri, DailyFX Research Team

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

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