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Chinese Yuan Weakens as US-China Trade Talks Begin, Housing Disappoints

September 19, 2019 at 17:19 by Andrew Moran

Chinese yuan denominationsThe Chinese yuan is weakening against a handful of currency rivals on Thursday as the world’s two largest economies begin low-level trade negotiations in Washington. With analysts anticipating economic growth to slip under 6%, and new housing data falling short of market expectations, Beijing is feeling bearish. A trade deal might be the only thing that saves the country.

Analysts are sounding the alarm about China’s economic growth prospects, warning that gross domestic product (GDP) might slow down even further in the third quarter. Economists are projecting that growth could slip below 6% in the July-to-September period after recording a 28-year low of 6.2% in the second quarter. While the government is a bit more optimistic than the market appears to be, the private sector slumped in August with industrial output tumbling to a near 18-year low.

Beijing is forecasting growth to reach 6% to 6.5% in 2019 and 2020, adding that the labor market could still add jobs even with slower GDP growth. Chen Wenling, the chief economist for the China Centre for International Economic Exchanges, explained that officials are focusing on other factors than just GDP, including manufacturing, living standards, healthcare, education, and governance.

That said, a new research note from UBS suggests that Chinese growth could cool down to 5.5% next year. The sour sentiment stems mostly from the fallout of higher US tariffs.

This week, low-level American and Chinese trade representatives are in Washington as part of the first series of negotiations to reach a new agreement. There have been plenty of reports suggesting that both sides are ready to strike an interim deal, which would calm fears and end the uncertainty. Still, the White House has dismissed the speculation.

On the data front, housing numbers were in focus. According to the National Bureau of Statistics, the house price index, which measures average prices of new homes in 70 cities, rose by 8.8% year-on-year in August, down from the 9.7% advance in July. This marks the third consecutive month of a slump.

The next major data will come out next week when industrial profits and manufacturing data are published.

The USD/CNY currency pair rose 0.15% to 7.0963, from an opening of 7.0861, at 17:12 GMT on Thursday. The EUR/CNY jumped 0.37% to 7.8474, from an opening of 7.8177.

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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