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Chinese Yuan Strengthens on Expanding Manufacturing Activity

June 1, 2020 at 17:00 by Andrew Moran

A fan of 50-yuan billsThe Chinese yuan is strengthening against several Western currencies on Monday, driven by a better-than-expected private sector survey of manufacturing in the world’s second-largest economy. The yuan is also trying to find direction on reports that Beijing is requesting state-run firms to suspend purchases of American agricultural goods. As many analysts anticipate another down year for the yuan, could a renewed trade dispute slam the offshore currency?

On Saturday, the National Bureau of Statistics (NBS) reported that the manufacturing purchasing managers’ index (PMI) came in at 50.6 in May, slightly down from 50.8 in the previous month. It also fell short of market forecasts of 51.0. The non-manufacturing PMI reading edged up to 53.6 last month, up from 53.2 in April. It also beat median estimates of 52.5.

The Caixin manufacturing PMI, which is a private-sector research mechanism, advanced to 50.7 in May, beating the market consensus of 49.6. This was the best reading since January when the COVID-19 restrictions were put into place.

Overall, foreign demand continued to remain weak as the coronavirus pandemic continues to afflict the global economy. The new-export-orders subindex, which measures external demand, did improve in May, but it fell short of expectations. The subindex that gauges imports also jumped, but it, too, came in less than expected.

On Tuesday, Caixin’s services and composite PMI readings will be released.

US-China trade relations are back in the news as Beijing reportedly mandated state-run agricultural firms to halt purchases of US pork, soybeans, and other farming goods. Private companies have yet to be given the same orders. Cofco and Sinograin had submitted pricing inquiries for as many as 30 cargoes of American soybeans last week, but now they have reportedly suspended purchases due to the new requests from the federal government.

Bloomberg notes that China is engaging in terse behavior over Washington’s actions on the Hong Kong issue. On Friday, President Donald Trump warned that it would slap sanctions and other tough measures on Chinese and Hong Kong if Beijing moved ahead with implementing national security laws on Hong Kong. Critics allege that the legislation, which would bypass Hong Kong’s legislature, would effectively outlaw large-scale demonstrations and imprison opposition figures.

Premier Li Keqiang reiterated the country’s promise to implement and abide by the phase-one agreement from January. Under the provisions, China would purchase $36.5 billion in US farm goods this year, but it has only imported about $3.35 billion in the first quarter of 2020. Both sides have engaged in a war of words over trade and Hong Kong. Both sides have reaffirmed their commitment to the first phase, but recent actions have sparked some consternation over the future of the trade deal.

China’s Foreign Minister Wang Yi accused the US of pushing a “new Cold War,” but urged US officials to end its pursuit of trying to change China. Hong Kong has also pushed back against US policy announcements.

The USD/CNY currency pair fell 0.13% to 7.1278, from an opening of 7.1373, at 16:49 GMT on Monday. The EUR/CNY rose 0.17% to 7.9307, from an opening of 7.9171.

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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