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Chinese Yuan Struggles to Find Direction Amid Bearish Economic Data

October 16, 2018 at 18:46 by Andrew Moran

Chinese 100-yuan notesThe Chinese yuan is struggling to find direction on Tuesday as the federal government released economic data that should trouble both officials and investors. Analysts do warn that the currency may get a lift on state stimulus amid the lingering trade dispute between the world’s two largest economies.

Last month, the consumer inflation rate advanced for the fourth straight month, reports the National Bureau of Statistics. Inflation edged up 2.5% year-over-year to a seven-month high, buoyed by rising food and energy prices.

The producer price index (PPI), an indicator of industrial profitability, edged up 3.6% in September, down from 4.1% in August.

For two big markets for China – automobiles and real estate – it was more bad news in September. Chinese home sales suffered a 49% year-over-year decline in 10 of the largest cities. Auto sales tumbled for the third consecutive month; they are now poised for their first annual decrease in three decades.

Reuters released a new poll of 68 economists pertaining to China’s third-quarter gross domestic product (GDP) numbers. According to the survey, the Chinese economy rose 6.6% in the July-to-September from the same time a year ago. This would be down from the second-quarter’s 6.7% and the weakest pace since the first quarter of 2009, the highest of the global economic collapse.

It should be noted that the third-quarter forecast is higher than the government’s projection of 6.5%.

Because the national economy has cooled down, the People’s Bank of China (PBOC) announced that it slashed financial institutions’ reserve requirement ratio (RRR) in early October. This was the fourth cut in 2018.

The rate cut came as the International Monetary Fund (IMF) revised its outlook for China by lowering growth to just 2% in 2019 and 2020. While the trade spat is being blamed for the significant slowdown, experts note that investor confident and frightened financial markets are having a greater impact.

The USD/CNY currency pair dipped 0.07% to 6.9119, from an opening of 6.9170, at 18:25 GMT on Tuesday. The EUR/CNY slipped 0.12% to 8.0016, from an opening of 8.0116.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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