Yuan, Aussie Dollar Suffer as Chinese October PMI Underwhelms
Talking Points – USD/CNH, CAIXIN PMI, TRADE WARS, AUD/USD, FOMC
- CNH, AUD weakened following decline in October’s PMI services and composite measures
- Yuan pared losses after President Xi announced trade talks with Europe, decreased tariffs
- USD/CNH may gain further on US midterm elections and FOMC rate decision this week
Get help trading the current economic conflict with ourbrief history of trade wars!
The US Dollar strengthened against the offshore Chinese Yuan after economic data crossed the wires early into Monday’s Asia Pacific trading session. October’s Caixin China PMI for the services sector clocked in at 50.8, a sharp decrease from both the 52.8 forecasted and the 53.1 prior. The composite gauge similarly disappointed, decreasing to 50.5 from September’s 52.1.
The slowdown in growth may indicate negative effects of the ongoing US-China trade war, in which President Trump fired the latest shot by alluding to continuation of tariffs and a “great deal” with China over the weekend. AUD/USD similarly decreased, as China is one of Australia’s major trading partners.
AUD/USD Chart (5-minute)
However, the Yuan soon pared its losses as President Xi Jinping spoke following the release of these PMI figures. He announced decreased in import tariffs and an acceleration in trade talks with Europe, in addition to World Trade Organization reforms. Xi also stressed the stability of the Chinese economy and its momentum.
USD/CNH Chart (5-minute)
USD/CNH’s gains continues its upside momentum occurring for the majority of this year, as Chinese growth has continued to slow in the wake of global trade tensions. The People’s Bank of China has attempted to offset this by launching offshore bills in Hong Kong and cutting required reserve ratios for banks in order to manage liquidity.
Looking ahead, volatility from the midterm elections in the United States will dictate most moves for the currency pair this week, possibly paving the way for more offshore Yuan losses. The currency pair also faces the release of October’s Chinese CPI, in addition to the FOMC rate decision later this week.
USD/CNH Trading Resources
- Join a free Q&A webinar and have your trading questions answered
- Just getting started? See our beginners’ guide for FX traders
- Having trouble with your strategy? Here’s the #1 mistake that traders make
- See how the Chinese Yuan is viewed by the trading community at the DailyFX Sentiment Page
--- Written by Megha Torpunuri, DailyFX Research Team