Chinese Yuan Rebounds After Disappointing PMI Data

The Chinese yuan is rebounding on Thursday after disappointing manufacturing and non-manufacturing data. Despite the jump, analysts anticipate weakness in the yuan for the rest of the year, even as the US and China are poised to reach the first phase of a comprehensive trade agreement between the world’s two largest economies.

The National Bureau of Statistics (NBS)’s manufacturing purchasing managers’ index (PMI) declined from 49.8 in September to 49.3 in October. The reading is below the market estimate of 49.8 and represents the sixth consecutive monthly contraction in factory activity, driven primarily by the trade dispute. The bearish number was caused by the 17th straight drop of new orders, as well as a dip in employment.
The NBS non-manufacturing PMI surprised analysts because it came in at 52.8 in October, down from 53.7 in September. The market had penciled in a reading of 53.9. It was the weakest figure since February 2016, which was also generated by sluggishness in new orders and employment levels.
Next on the schedule will be the Caixin manufacturing and non-manufacturing PMI readings for October, foreign exchange reserves, and trade numbers. Experts are projecting another contraction in imports and exports, but they do think there will be an improvement from the previous month.
Global financial markets were celebrating this week when it was reported that the first phase of the US-China trade agreement was being finalized. However, there was a brief pause in the jubilation because an administration official told reporters that the written agreement may not be signed during the Asia-Pacific Economic Cooperation (APEC) summit in Chile in mid-November, though he assured everyone that it would still be agreed upon.
Is that good news for the yuan? Not quite. Goldman Sachs believes that the yuan will likely stay above the seven threshold, even topping 7.20 against the dollar throughout November. The big thing for the yuan is the cooling Chinese economy; the gross domestic product (GDP) was 6% in the third quarter, slower than expected.
The USD/CNY currency pair tumbled 0.24% to 7.0387, from an opening of 7.0554, at 19:16 GMT on Thursday. The EUR/CNY slipped 0.18% to 7.8464, from an opening of 7.8608.

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