The Chinese yuan is trading relatively flat against the US dollar in the middle of the trading week as weak economic data weighed on the currency. The yuan had been under pressure on both disappointing data and public policy interventions. Overall, it has been a mixed 2021, and financial experts believe that the sideways trading could persist heading into the fourth quarter.
On Tuesday, the National Bureau of Statistics (NBS) reported that the manufacturing purchasing managers’ index (PMI) fell to 50.1 in August, down from 50.4 in July – anything above 50 indicates expansion. The market had anticipated a reading of 50.2. This is the lowest measurement of factory activity since February 2020 due to higher material costs and the Delta variant of COVID-19 outbreaks.
Within the PMI, output, buying levels, new orders, export sales, and employment were softer. Business sentiment fell for the sixth month in a row.
The non-manufacturing PMI slipped into negative territory, clocking in at 47.5, down from 53.3 in the previous month. This represented the first contraction in services activity since February of last year amid shrinking new orders, export orders, and employment. Business confidence also slumped to its lowest level in seven months.
The private-sector reading of the manufacturing sector also declined. The Caixin general manufacturing PMI tumbled to 49.2 in August, down from 50.3 in July, which was also the first decrease in factory activity since April 2020. Output, new orders, export sales, buying levels, and employment slipped. But business sentiment held steady.
The disappointing data in recent weeks has prompted officials to pledge an increase in credit support, with the People’s Bank of China (PBoC) urging the major financial institutions to boost their loan quota. After months of liquidity easing, market analysts are anticipating an acceleration in monetary support, especially after the reserve requirement ratio (RRR) was slashed again last month.
Is the lackluster growth a result of unwinding fiscal and monetary support and relief tools?
The USD/CNY currency pair edged up 0.05% to 6.4638, from an opening of 6.4607, at 13:19 GMT on Wednesday. The EUR/CNY jumped 0.24% to 7.6489, from an opening of 7.6304.