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Chinese Yuan Rebounds on Strong Industrial Output, Retail Sales Data

December 15, 2020 at 16:05 by Andrew Moran

Yuan note reverseThe Chinese yuan is rebounding against the US dollar on Tuesday, buoyed by impressive data that highlight the strengthening recovery in the world’s second-largest economy. The yuan, which has come under pressure against its US peer this month, is looking to expand its rally in the home stretch of 2020. But will Beijing allow it to happen?

According to the National Bureau of Statistics (NBS), retail sales surged 5% year-over-year in November, marking the fourth consecutive monthly retail trade gain. This was also the fastest growth in retail sales since December 2019. The biggest sales drivers were automobiles, cosmetics, home appliances, building materials, apparel, and jewelry. But there were declines in furniture and crude oil products.

Last month, industrial production climbed at an annualized rate of 7%, the best performance since March 2019. The renewed industrial activity was supported by higher manufacturing, mining, utilities, chemicals, textiles, and electrical machinery.

Year-to-date fixed asset investment matched market expectations with a 2.6% year-over-year gain, with public investment increasing 5.6% and private investment rising 0.2%.

On Monday, the Chinese government reported that average new home prices in the country’s 70 largest cities jumped by an annualized rate of 4% in November. On a monthly basis, the new home price index edged up 0.1%. This was the fourth straight month of falling prices.

But while this could be triggering a mini-rally heading into the Lunar New Year holiday, foreign exchange markets are homing in on the People’s Bank of China (PBoC) and two of the latest developments.

PBoC officials announced that it was injecting $3.3 billion of liquidity into the banking system through reverse repurchasing agreements. It left the seven-day repo interest rate at 2.2%.

The central bank also confirmed that it would limit or even reduce capital inflows to place a cap on the yuan’s meteoric appreciation. The PBoC wants to lower cross-border financing, but authorities did not say how much they could scale back inflows. This could be a major move for the currency in 2021 since Beijing does not ostensibly want the yuan to rise any further because it would impact its export-oriented economy.

The USD/CNY currency pair tumbled 0.17% to 6.5394, from an opening of 6.5508, at 15:00 GMT on Tuesday. The EUR/CNY dropped 0.1% to 7.9477, from an opening of 7.9569.

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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