Chinese Yuan Extends Gains on Macroeconomic Data, PBoC Easing

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The Chinese yuan is continuing its ascent against the US dollar on Tuesday as the currency found support in macroeconomic data and an easing central bank. The yuan will now test 6.9 against the greenback as the country’s economic recovery rebounds better than the forecasts. With Beijing pledging to meet the provisions of the phase one trade agreement with Washington, is it all upside for the yuan?

According to the National Bureau of Statistics (NBS), the July inflation rate rose 0.6%, up from the 0.1% dip in June. The market had penciled a reading of 0.4%. Inflation has risen 2.7% on a yearly basis. The producer price index (PPI) slumped 2.4% last month at an annualized rate, meeting expectations.

Last month, motor vehicle sales surged 16.4%, up from the 11.6% increase in the previous month.

In other data, outstanding loan growth advanced 13% year-on-year in July, down from the 13.2% jump. The M2 money supply rose at an annualized rate of 10.7% in July, down from the 11.1% boost in June.

Recently, the People’s Bank of China (PBoC) confirmed that it would relax its aggressive approach to monetary policy, targeting a more flexible and appropriate monetary policy in the second half of 2020. PBoC Governor Yi Gang told the Xinhua News Agency that credit would be more prevalent for the rest of the year, adding that only sectors in dire need of assistance would be supported.

Yi’s comments confirm previous reports that the central bank would be less aggressive as the world’s second-largest economy rebounds from the coronavirus-induced slump.

He further noted that implementing the provisions of the US-China trade pact from earlier this year remains of paramount concern to the Chinese leadership.

No matter how international situation changes, the most important thing is that we take care of our own affairs and firmly deepen financial reforms and opening up. Firstly, we’ll continue to implement the phase-one trade deal with the US.

US and Chinese officials will be holding a video conference later this week to discuss the state of the trade agreement.

The USD/CNY currency pair tumbled 0.23% to 6.9461, from an opening of 6.9619, at 16:45 GMT on Tuesday. The EUR/CNY edged up 0.08% to 8.1773, from an opening of 8.1722.

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