The China renminbi held steady against the US dollar after the country published the latest GDP, industrial production, and retail sales data. The USD/CNY exchange rate was trading at 7.1178, 1.54% above the lowest point this month.
China GDP data
The Chinese economy continued growing at a slower pace than expected after the National Bureau of Statistics (NBS) released the latest GDP data.
The numbers revealed that the economy expanded by 0.9% in Q3, missing the analyst estimate of 1.0%. It had grown by 0.7% in the second quarter.
This growth translated to an annual expansion of 4.6%, also lower than Q2’s growth of 4.7%. It was also in line with what analysts were expecting, but lower than the 5% target set by Beijing.
China also published other strong economic numbers. Retail sales rebounded by 3.2% in September after growing by 2.1% in the previous quarter.
This is an important report because the recent leading indicators showed that the retail sector slowed down. For example, LVMH, the biggest brand in the luxury industry, said that its business continued to underperform the market in the third quarter.
Other Chinese online retailers like Alibaba, JD.com, and PDD Holdings also released relatively weaker numbers than expected.
China’s retail sales have been weak because of the worsening labor market and as more people prioritised debt reduction to spending. In a note to Invezz, Maggie Wang, a 35-year-old lady said:
“The economy is not doing well, and so, we have deliberately reduced our spending this year. We are focusing on reducing our debt first until things improve.”
China retail sales, industrial production, and house prices
Retail sales likely did well because of the inflation situation in the country. Data released earlier this week showed that the headline Consumer Price Index (CPI) slowed from 0.4% to 0.0% on a MoM basis, and from 0.6% to 0.4% on an annual basis.
Another report showed that China’s industrial production made some modest improvement in September. It grew by 5.4% on an annual basis, higher than the median estimate of 4.6%. It expanded by 4.5% in August. The unemployment rate improved to 5.1% from 5.3% in the previous month.
The USD/CNY also reacted to the weaker housing data. The NBS said that the house price index dropped from 5.3% in August to 5.8% in September.
Therefore, these numbers mean that the economy will likely continue doing well in the coming months because of the recently announced stimulus package.
The government is working to boost spending and invest in strategic sectors. For example, it has unveiled over $70 billion in funds to save the real estate sector, which collapsed after Bejing changed its national policy on debt. In a note, analysts at Bloomberg said:
“Stronger-than-expected headline readings…do not mean China’s economy is on the mend. Looking ahead, we expect the economy to pick up speed, but only gradually.”
Federal Reserve rate cuts
The USD/CNY and USD/CNH exchange rates also reacted to the recent US economic numbers and their implications on the Federal Reserve.
Data released on Thursday showed that the headline retail sales rose from 0.1% in August to 0.4% in September, higher than the median estimate of 0.3%. Sales rose by 1.74% on an annual basis.
Core retail sales, which excludes the volatile food and energy prices, rose from 0.2% in August to 0.5%in September, higher than the median estimate of 0.1%.
Retail sales are important numbers for two reasons. First, the retail sector is one of the biggest employers in the US. Second, it is a good prediction of consumer spending, the biggest part of the American GDP.
More data showed that US manufacturing production dropped by 0.4% in September, while industrial production fell by 0.3% during the month. These drops were worse than what most analysts were expecting. US initial jobless claims improved to 241k, while the continuing claims fell to 1.867 million.
These numbers mean that the Federal Reserve will likely remain under pressure in the coming meetings. Analysts see the bank opting for a 0.25% rate cut instead of the 0.50% it slashed in the last meeting.
USD/CNY technical analysis
USD/CNY chart by TradingView
The daily chart shows that the USD to CNY exchange rate bottomed at 7.017 in September, and has rebounded to 7.12. It has jumped to its highest point since September 11, and moved above the 50-day moving average.
The Relative Strength Index (RSI) and the MACD indicators have pointed upwards, meaning that it has bullish momentum.
Therefore, the USD/CNY exchange rate will likely continue rising as bulls target the next key resistance point at 7.20. More downside will be confirmed if the pair drops below the key support at 7.017.
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