Fundamental Analysis: Renminbi’s Small Losses after Data

The offshore renminbi (offshore yuan) has made some small losses against the dollar today after data showed that Chinese manufacturing has returned to growth. Other factors affecting CNH today were shares, oil, and the latest figure for pledged supplementary lending.

USDCNH made some gains to around ¥6.714 at the time of writing. However, volatility was higher than usual in the early morning as the impact of this morning’s data was initially unclear.

Manufacturing returns to growth

Caixin manufacturing PMI from China this morning indicated a return to growth in the sector. The figure came in at 50.8, the highest since July 2018 and the first positive release since November of last year. Some analysts have suggested that this figure could be an early sign of the worst of the recent slowdown being over.

Shares in Shanghai meanwhile posted very strong gains today. The SSE Composite Index added more than 2.5% in today’s session, reaching fresh 11-months highs above 3,170. Also a positive was the negligible increase in pledged supplementary loans at the end of March, valued at ¥3.54 trillion. The increase of less than 10 billion appears to indicate that the People’s Bank of China does not expect an extended economic slowdown.

Gain for crude oil have weighed on the offshore yuan recently. This is mainly because China relies on imported crude for growth in its industry. American light oil made fresh 2019 highs this morning GMT around $60.90 a barrel.

Traders watching data, shares, and politics

The most important data from China this week are PMI releases on Wednesday morning. Caixin composite and service PMI is due at 01.45 GMT – slight declines are expected but still the figures might be just within positive territory.

Movements by the SSE Composite are likely to have some effect on the offshore yuan this week. More big gains and fresh highs are unlikely in the near future, but CNH would receive support from the index holding close to current levels. Equally any pullback by oil would be a positive for the offshore yuan.

In trade talks, Vice Premier Liu He of China’s General Office left for Washington this morning. The continuation of trade talks is a key driver of volatility for many symbols, not just USDCNH.

Strengthening in view for offshore yuan

Fundamentals in general indicate that offshore renminbi is most likely to make gains against the dollar over the next few days. Nevertheless, traders should be very careful to watch economic data and most of all news from Washington. Rumors from the Sino-American talks could change the outlook significantly this week.

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