USD/CNY darts upwards as Shanghai Covid cases rise

The USD/CNY rose while Chinese stocks declined sharply after the number of Covid-19 cases in Shanghai worsened. The Chinese yuan is trading at 6.37 against the US dollar while CSI and Hang Seng declined by 2%.

Shanghai outbreak continues

The Chinese economy is seeing a sharp uptick in the number of Covid-19 cases. As a result, many analysts expect that the country’s economy will see a slight slowdown in the second quarter of this year.

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Most of these cases are in Shanghai, one of the most important cities in China. The government has announced a widespread lockdown and warned that the situation will worsen in case of a quicker reopening. 

The city has confirmed over 130k new cases. Interestingly, it has recorded no death so far. Officials have adopted a Covid-zero strategy, which analysts question whether it will work.

Well-known companies in China have shut down their plants in the city. Some of the most notable firms to do that are automakers Tesla and Nio and some Apple suppliers. 

Meanwhile, the impact of this new outbreak has spread in other sectors. For example, the city’s leading banks have announced that they will allow residents to delay their mortgage payments. Banks like ICBC, Bank of Communications, and China Construction Bank are offering a payment delay of as long as three months. China has $8.2 trillion of outstanding loans to the real estate sector.

The USD/CNY pair also rose after the latest China inflation data. According to the statistics agency, the headline inflation declined from 0.6% in February to 0.0% in March. On a year-on-year basis, the CPI increased from 0.9% to 1.5%. Meanwhile, the producer price index (PPI) fell from 8.8% to 8.3%.

USD/CNY forecast

The daily chart shows that the USD/CNY pair has been in a bearish trend in the past few months. It has fallen by more than 3% from its highest point in 2021. Recently, however, it has tilted upwards and is approaching the upper side of the descending channel. 

Also, it is slightly above the 25-day and 15-day moving averages. Therefore, the pair will likely resume the bearish trend as bears target the lower side of the channel at 6.30.