Key points:
- Offshore yuan rebounds to 7.11 per dollar as Trump’s election chances fade.
- Fewer tariff threats on Chinese goods ease market concerns.
- China’s mixed trade data points to robust exports but sluggish domestic demand.
- U.S. inflation report and the economic data of China could impact the direction of the Chinese yuan.
The offshore yuan appreciated past 7.11 per dollar, bouncing back from three consecutive days of decline.
Picture: U.S. dollar losing strength against the Chinese yuan as Trump’s election chances falter, as observed on the VT Markets app.
The USD/CNH pair saw a shift in sentiment, as it moved from recent highs around 7.1360 to lower levels around 7.1170. This drop can be attributed to changing market expectations regarding Donald Trump’s political prospects. As his perceived chances of winning the U.S. presidency have adjusted, traders now see less likelihood of future tariffs on Chinese goods, leading to a reduction in trade war fears.
On the technical side, the chart shows a sharp dip in the past few sessions, with the MACD reflecting the momentum shift downward. The moving averages (EMA 24, 24, 72) suggest a correction is underway, although the 7.0733 support level from earlier in the week may serve as a floor.
For now, the USD/CNH remains under pressure, with traders likely to continue adjusting positions based on how the election results are perceived to turn out.
Trump had proposed sweeping trade measures, including a 10% blanket tariff on imports and significantly higher tariffs on Chinese goods specifically. With his diminished political prospects, markets are pricing in a lower chance of these protectionist policies coming into effect, leading to some relief for the yuan.
Meanwhile, the trade data in China painted a mixed picture. The country reported strong export growth earlier in the week, but this was overshadowed by weaker import figures and consumer inflation falling short of expectations. This divergence suggests lingering weakness in domestic demand, a concern for policymakers aiming to rebalance the economy.
Looking ahead, market participants are keenly watching the U.S. inflation report, which will be critical in shaping expectations around Federal Reserve policy. Additionally, China will release key economic data on Saturday, including industrial production, retail sales, and the unemployment rate, all of which will offer more clues about the health of its economy.
Related content: Interest rate tug-of-war for central banks
Market outlook for the Chinese yuan
For short-term traders, such a recovery of the Chinese yuan offers a window of opportunity, particularly for those betting on reduced trade tensions between the US and China.
However, risks remain, with U.S. inflation data and key Chinese economic figures looming. Depending on the strength of these indicators, traders should keep risk management intact when executing trades.
