Here’s why the yuan retreated after strong China economic data

The USD/CNY soared to the highest level since January 2022 as investors reacted to the strong economic data from China. It is trading at 6.3783, which is about 1.20% above the lowest level this year. 

Chinese economic growth

The Chinese economy is firing on all cylinders as global demand rises. According to the latest data by the National Bureau of Statistics, the country’s retail sales jumped from 1.7% in January to 6.7% in February. This was significantly better than the median estimate of 3.0%. These sales are important because they are important measures of consumer spending.

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Further data showed that the Chinese industrial production rose from 4.3% in January to 7.5%, which was significantly better than the median estimate of 3.9%.

Most importantly, Chinese companies continued making significant investments as growth continued. As a result, fixed asset investments rose from 4.9% to 12.2%. The only data that disappointed was the unemployment rate, which rose from 5.1% to 5.5% in January. 

Earlier this month, data by PMI and NBS showed that China’s manufacturing PMI did well in February.

Why the USD/CNY rose

Therefore, despite these numbers, the USD/CNY pair rose for two main reasons. First, the Chinese yuan declined because analysts expect that the economy will slow amid new Chinese lockdowns as the number of Covid-19 cases rose the most in two years. It has ordered a city of 51 million people to lockdown, including Apple’s manufacturer, Foxconn.

Second, the jump is because of the upcoming interest rate decision by the Federal Reserve. Analysts expect that the Fed will deliver a rate hike on Wednesday. What is not clear is the size of these rare hikes. While some analysts expect a 0.25% increase, others believe that the Fed will be more ambitious than that.

Third, there are rising tensions between China and western countries. US intelligence officials said that Russia had requested weapons as it continued to battle Ukraine.