The yuan still faces both internal and external challenges. 

The value of the Chinese yuan has weakened to its lowest level in 5 months, with signals from the US Federal Reserve supporting a stronger dollar due to expectations of another interest rate hike.

The US Dollar Index (DXY) has strengthened significantly after James Bullard, the President of the St. Louis Fed, stated that the Federal Reserve may still need to raise interest rates by an additional 0.5% within this year.

China's economic slowdown is influenced by exchange rate market forces, with investors hoping for intervention by the People's Bank of China (PBOC) if the yuan depreciates too rapidly. Reassurances were given during the past week to control speculative activities and maintain stability in the foreign exchange market.

Meanwhile, Chinese registered companies have a growing demand to exchange more foreign currencies. This is primarily due to the need to pay increased dividends to foreign shareholders between May and June.

Analysts at Goldman Sachs have revised down their yuan value forecasts, citing lack of confidence in the Chinese economy as the biggest risk to the country's recovery prospects in the second half. They suggest that if the lack of confidence persists, overly light control measures in the second quarter may result in disappointing growth in subsequent quarters.

Joey Chew, the head of Asian FX research at HSBC, stated that various factors, including differences in interest rate returns, weak investor confidence, and capital outflows, all contribute to the depreciation of the yuan.

Additionally, China is facing a new wave of COVID-19 infections, which could see up to 65 million cases per week by the end of June. This projection was made by respiratory disease expert Zhong Nanshan during a technology conference in Guangzhou.

According to Bloomberg, XBB is expected to lead to 40 million infections per week by the end of May, before reaching a peak of 65 million cases the following month. This event occurred nearly 6 months after Beijing loosened its Covid Zero policy, leading to a rapid spread of the virus among the country's 1.4 billion residents.

In managing this new wave of COVID-19 infections, stringent measures and significant financial resources are necessary. While the spread may not be as severe as earlier in the year, it remains a significant variable that could disrupt industries and lead to further spread if not effectively managed.

Technical analysis data (5H)

Resistance: 7.0589, 7.0752, 7.0833

Support: 7.0345, 7.0264, 7.0101

Source: Investing.com

 

Pivot Points May 24, 2023 03:31 PM GMT+7