Strong Chinese PMIs boost yuan

The Chinese yuan is steady in the Thursday session. Currently, USD/CNY is trading at 6.5468, up 0.09% on the day.

China PMIs show expansion 

China PMIs have looked sharp this week. The latest release was Caixin Services PMI on Thursday, which accelerated to 57.8, marking a 5-month high. The manufacturing and services PMIs for November continue to point to expansion in these critical sectors, with readings above the 50-level, which separates expansion from contraction. What has been particularly encouraging about the November data, is that both the official and Caixin PMIs improved in November and also surpassed expectations.

China has done a masterful job at controlling Covid-19, which affected China in early 2020 before spreading across the globe. The handful of confirmed Covid cases on a daily basis is the envy of the major economies, most of which have failed to control the virus. This has allowed China’s economy to recover close to its pre-pandemic levels, as Chinese data, such as PMIs, continue to point upwards. With the US and Europe struggling to contain Covid, it is China that appears to be the locomotive of economic growth, a bright spot in the gloomy landscape of the global economy.

China’s impressive economic recovery, as well as a broadly-lower US dollar, have combined to propel the Chinese yuan sharply higher. USD/CNH has declined 7.3% since June, as the yuan is hovering close to its highest level since June 2018. With the Biden Administration expected to implement massive stimulus in order to boost the US economy, there is more room for the yuan to gain ground. Biden is also expected to lower the temperature of the trade war between the US and China, which would be a bullish development for the Chinese currency.

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USD/CNH Technical

• USD/CNH faces resistance at 6.5557. Above, there is resistance at 6.5698
• We find support at 6.5338, followed by support at 6.5260
• The pair continues to hover close to the 20-day MA line

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