yuan darts higher as China PPI rockets to 2008 highs

The USD/CNY price retreated after the relatively strong China producer and consumer price index (CPI) data. It retreated to 6.3943, which was 0.35% below the highest level this month. 

USD/CNY
USD/CNY price action

China inflation

China was the first global economy to emerge from the coronavirus pandemic. The country did that by reacting quick to the pandemic. Also, as more countries locked their economies, they turned to China to source for their materials. 


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The Chinese recovery has continued this year as evidenced by the large trade volumes coming from China. Indeed, the country’s main issue is that there is congestion in many ports that it serves. 

In a report on Wednesday, the National Bureau of Statistics (NBS) said that the Chinese producer price index rose from 6.8% in April to 9% in May, this year. This was the highest factory gate price increase since 2008 and is a sign that manufacturers are doing well. Analysts polled by Bloomberg were expecting the PPI to come in at 8.5%.

In the same period, the Chinese CPI rose from -0.3% to -0.2%, which was less than the median estimate of -0.1%. As a result, the CPI rose from 0.9% to 1.3% on a year-on-year basis. Therefore, there are signs that the divergence between consumer and producer prices is widening. This will likely lead to smaller profits, according to analysts at ING.

Looking ahead, the next big catalyst for the USD/CNY pair will be the latest US consumer price index data that will come out on Thursday. Analysts expect that the headline CPI rose from 4.2% in April to 4.8% in May while core CPI rose from 2.3% to 3.2%. These numbers are notable because they will have an impact on the American interest rates.

USD/CNY technical analysis

USD/CNY
USD/CNY technical chart

The four-hour chart shows that the USD/CNY has managed to bounce back after falling to a multi-year low 6.3554 in May. The pair is oscillating along the 25-day and 15-day moving averages. At the same time, the pair seems to be forming an inverted cup and shoulders pattern that is usually a bearish signal. 

Therefore, there is a possibility that the pair will keep rising as bulls target the 38.2% retracement level at 6.4400. However, a drop below 6.38 will invalidate this forecast.

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