China's weak foreign trade spurs further Yuan weakening
|Further signs of a slowdown in China came from the trade balance. The foreign trade data published in the morning was noticeably weaker than expected.
Dollar-denominated exports fell by 7.5% YoY despite a more than 4.5% weakening of the Chinese yuan against the dollar during this time.
Imports fell by 4.5% y/y, declining against the previous year for nine of the last ten months.
The trade surplus narrowed in May to $65.8bn against expectations of $95bn, a sharp dip instead of an uptrend.
After this report, it is unsurprising that the People's Bank of China had urged state banks to lower interest rates to stimulate domestic demand earlier in the day. Given the shallow inflation (starkly contrasting to most of the world), there is still plenty of room for stimulus.
A separate trend is the renminbi, which has been retreating methodically against the dollar for the last eight weeks, roughly following the trend of last year and leaving the renminbi 7% below levels from a year ago.
If the authorities maintain the gradual weakening of their currency, this could support the competitiveness of Chinese exports. However, if no improvement in export dynamics is visible, further pressure on the renminbi should be expected. If the NBK tries to maintain a 7% weakening of the renminbi against the level of a year earlier, the USDCNH could rise to 7.8 in October.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.