China’s economy experienced a setback with the release of weaker-than-expected PMIs over the weekend, especially in the manufacturing sector. The sudden drop to 49.2 in April from 51.9 in the previous month has raised concerns as it shows a quicker loss of momentum than anticipated. The decline in manufacturing activity is worrisome since it has been on a downward trend since 2018, despite the challenges posed by COVID-19. However, the non-manufacturing sector still indicates growth, with a PMI of 56.4 in April.
The focus on manufacturing PMI is due to their impact on global trends and the assessment of export and import potential, which, in turn, affects the renminbi exchange rate. The weakening of China’s manufacturing sector led to a rise in the USDCNH exchange rate on Monday, breaking above its 200 SMA at 6.95.
This content also provides a technical analysis of the USDCNH exchange rate, indicating that a decisive break of the long-term trend indicator is likely to depend on the outcome of the Fed meeting. The analysis suggests that a move lower in the USDCNH exchange rate to 6.30 could happen in the coming months if the trend continues, while a sharp move higher could lead to increased volatility.