The USD/CNY exchange rate recorded 6.9700 last week, its lowest level since May 16, 2023, and is currently trading near the 7.0000 levels. As for Chinese stocks, the CSI300 index rose significantly, closing at approximately 4,018 points two days ago, marking its highest level since August 4, 2023, and up by about 17% since the beginning of the year. Similarly, the Hang Seng index closed at 21,134 points two days ago, its highest level since February 10, 2023, rising by about 23% since the start of the year.
Thus, we are witnessing notable strength in both the Chinese currency and Chinese stocks at this stage, thanks to a key factor: the new stimulus measures implemented by the Chinese authorities, specifically by the People’s Bank of China, to revive the economy. These measures include reducing the reserve requirement ratio and the main interest rate, easing rules for second-home purchases, and allowing funds and brokers to use central bank funds to buy stocks, among other steps. The aim of this stimulus is to achieve China’s annual growth target of 5%.
Investors are closely watching how these stimulus measures will impact Chinese economic indicators in the upcoming period, especially since we have recently seen negative economic data such as the manufacturing PMI, which recorded a contraction of 49.8 in September for the fifth consecutive month. Similarly, the Caixin manufacturing PMI recorded a contraction of 49.3, its lowest level since July 2023.
As for the USD/CNY pair, it has declined by about 5% from the peak of July 3, 2024, which recorded 7.3108, to the low recorded on September 26, 2024, at 6.9700.
It appears that technical indicators may put pressure on the USD/CNY pair in the upcoming period for several reasons:
- Bearish Crossover: A bearish crossover occurred between the 50-day moving average (blue), which stands at 7.1212, and the 200-day moving average (yellow), which stands at 7.2054, on September 3, 2024.
- Relative Strength Index (RSI): Currently registering approximately 39 points, indicating bearish momentum for the USD/CNY pair.
- MACD Indicator: The MACD line (blue) is below the signal line (orange) and in the negative zone, also indicating bearish momentum for the USD/CNY pair.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
