Chinese Yuan: Weak data fails to prevent four-year high – Commerzbank

The CNY extended its gradual, managed appreciation, with USD/CNY falling below 6.65 to put the currency at its strongest against the Dollar in more than four years. This came despite weaker Chinese sentiment in October, as Commerzbank’s Volkmar Baur notes: official manufacturing and non-manufacturing PMIs dropped below 50, and new construction orders declined towards record lows. Meanwhile, input costs and producer prices signal an increase in producer inflation.

Why is the Yuan strengthening as domestic data weakens?

"China’s economic sentiment took a hit at the start of the fourth quarter. In October, the official purchasing managers’ indices for both manufacturing and the rest of the economy fell back below the 50-point expansion threshold, reversing September’s recovery. Only the privately compiled RatingDog PMI (formerly Caixin) remained above the threshold, at 52."

"In services, the current business activity index at least managed to hold at 50 despite declining, while sentiment in construction fell from 50.3 to 48. New orders in construction dropped to 40, a level close to its all-time low outside the pandemic period."

"Input costs, by contrast, continue to rise. The price indices for raw materials and producer prices point to producer price inflation of 0.3% month-on-month. The annual rate, which most recently stood at 5%, may therefore have risen further in October."

"The CNY, meanwhile, remains unfazed by these developments, with USD/CNY falling below 6.65 this morning. This put the CNY at its strongest level against the US dollar in more than four years. In October alone, it appreciated by 0.7%, continuing its path of slow and managed appreciation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)