Yuan steady after strong China manufacturing PMI data

The USD/CNY price had a difficult January as the Chinese yuan continued its comeback against the US dollar. The index dropped to a multi-month low of 6.3023, which was about 1.12% below the highest level this year. 

China manufacturing PMI

The Chinese economy continued its comeback in February as global demand kept rising and as supply chains improved. 

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This is according to data published by the Chinese government and Markit. According to the National Bureau of Statistics (NBS), the Chinese manufacturing PMI expanded from 50.1 in January to 51.2 in February. The increase was better than the median estimate of 50.1.

Meanwhile, data by Markit confirmed the strong recovery of the Chinese manufacturing sector. The manufacturing PMI rose from 49.1 in January to 50.4 in February. Again, this was a better number than the median estimate of 40.9. It was the first time in two months that the number has been above 50. In a statement, Markit said:

Prices data showed a sharp and accelerated rise in average input costs. Notably, the rate of inflation hit a four-month high, with firms citing greater costs for raw materials, staff and transport. Selling prices likewise increased at the steepest rate since last October. 

The non-manufacturing sector also did well. According to the government, the non-manufacturing PMI rose from 51.1 in January to 51.6 in February. 

This performance will likely continue in the coming months as global demand is expected to remain steady. Also, supply chains are expected to improve although the Ukrainian crisis may exacerbate the situation. Recently, European countries have closed their air space from Russian traffic and vice verw. That will have an immediate impact on the global economy. 

USD/CNY forecast

The daily chart shows that the USD/CNY has been in a strong bearish trend in the past few months and is trading at the lowest level since April 2018. As a result, the pair has moved below the 25-day and 50-day moving averages. It also crossed the key support level at 6.3188, which was the lowest point on January 27th this year. 

Therefore, unless the PBOC intervenes, there is a likelihood that the USD/CNY pair will continue dropping in March as bears target the next key support level at 6.2500. On the flip side, a move above 6.35 will invalidate the bearish trend.

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