The USD/CNY exchange rate held steady on Monday after the relatively disappointing China consumer price index (CPI) data. The pair jumped to a high of 7.2324, the highest level since November last year.

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China inflation slips

The USD to Chinese yuan exchange rate has been in a strong bullish trend this year as the Chinese economic recovery falters. Most analysts now expect the country’s recovery to be slower than expected. 

In a recent report, analysts at S&P Global slashed their GDP forecast from 5.5% in February to 5.2% in March. Similarly, those at Nomura cut their estimate from 5.5% to 5.1%. Others who cut their estimates were from Goldman Sachs, Standard Chartered, and Bank of America.

More evidence of this slowdown emerged on Monday when China published weak consumer and producer inflation data. The headline CPI dropped 0.1% in June, the fourth straight month it has been in the red.

Inflation rose by 0.0% on a year-on-year basis, lower than the median estimate of 0.2%. This was the slowest increase since 2021. A lower inflation figure is often a sign of slow economic recovery.

The next important CNY news will come out on Thursday when China will publish the latest trade numbers. The volume of the country’s exports and imports has dropped sharply in the past few months. In May, exports and imports weakened by 7.5% and 4.5%, respectively.

The other catalyst for the USD/CNY price will be the upcoming US consumer inflation data set for Wednesday. Economists expect the data to show that the headline inflation dropped to 3.1% in June while core inflation fell to 5.1%.

USD/CNY forecast

USD/CNY chart by TradingView

The Chinese renminbi has been in a downward trend since January this year. On the daily chart, the pair has moved above the 25-day and 50-day exponential moving averages (EMA). It is also approaching the important resistance level at 7.3305, the highest point on November 1 of last year.

The Relative Strength Index (RSI) has moved slightly below the overbought level. Therefore, the outlook of the USD/CNY pair is bullish, with the next level to watch being at 7.3305. More upside will only be confirmed if the pair moves above 7.3305.

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