The renminbi is performing well as the Chinese economy continues to thrive. The USD/CNY exchange rate plunged to a low of 7.1300, its lowest level since November last year and 3% below its highest level this year.
Chinese yuan gains momentum
The USD/CNY pair continued falling last week, helped by the Chinese economy, the roaring stock market, and the falling US dollar.
Data released on Sunday showed that the Chinese manufacturing and services sectors continued improving in August.
The manufacturing PMI increased from 49.3 in July to 49.4 in August, higher than the median estimate of 49.2. While a PMI figure of below 50 is a sign of contraction, the fact that it is moving upwards is a good indicator.
The report showed that the non-manufacturing PMI rose from 50.1 in July to 50.3 in August, helping to push the general PMI up from 50.2 to 50.5.
Recent data has shown that the Chinese economy was doing well in spite of the ongoing trade war with the United States.
A report by the statistics agency showed that the Chinese economy grew by 5.2% in the second quarter, down from 5.4% in the first one. This growth was driven by the rising exports as American companies rushed to buy products before Trump’s tariffs.
The first and second quarter data means that the Chinese economy will likely grow at a faster pace than the planned 5%.
Meanwhile, the Chinese yuan has also done well as the stock market has surged in the past few months. The Shanghai Composite has soared to its highest level in years, thanks to increased participation by retail investors.
US Dollar Index weakness
The USD/CNY exchange rate has plunged because of the ongoing US dollar weakness. Data shows that the DXY Index has plunged from the year-to-date high of $110 to below $98 as the economy has continued to struggle.
Recent data showed that the US economy grew by 3.3% in the second quarter. While this was an improvement, it came after the economy contracted in Q1 as the Chinese one grew.
The US labor market has deteriorated, with the unemployment rate rising to 4.2% in July. It created just 73,000 jobs in July, and analysts expect it to have added 78k in August.
Therefore, analysts expect the Federal Reserve to begin cutting interest rates at its upcoming meeting in September.
USD/CNY technical analysis
The daily timeframe chart shows that the USD/CNY exchange rate has been in a strong downward trend in the past few months. It has crashed from a high of 7.3498 in April to the current 7.1300, its lowest level since November last year.
It recently plunged below the important support level at 7.1480, its lowest level on July 24. Moving below that level confirmed the bearish breakout.
The pair remains below the 50-day and 200-day moving averages, which formed a death cross in June.
Therefore, the pair will likely continue falling as sellers target the key support level at 7.010. Such a move will signal a 1.68% drop below the current level.
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