July 15 (Reuters) – The slowdown in economic growth is not the main concern of yuan bulls – it might even encourage the government to trigger more stimulus. The tenacious fear that China could impose new COVID lockdowns is the greatest threat.
China’s second-quarter GDP fell short of expectations, growing just 0.4% a year and falling a bigger-than-expected 2.6% quarter-on-quarter, well below forecast of 1.5% drop. A silver lining appears in June retail sales that topped the most optimistic Reuters poll should increase by 3.1% over one year, yet disappointed industrial production.
China retained its reference one year rate on the medium-term lending facility unchanged on Friday, as expected, while fully rolling over maturing loans. The central bank has recently cast a less dovish tone.
Most disturbing is that Beijing seems to want stick to its COVID containment strategy until 2023 . Without reopening the borders and allowing unimpeded international trade, the Chinese economy could remain a shadow of its old me.
As the US Dollar extends its broad rally, USD/CNH currently at 6.7635, is about to enter a higher plane, teasing a break above its 200-week moving average at 6.7331. Friday’s close could tip it towards the major psychological barrier at 7.0000, especially if it closes above a 50% retracement line at 6.7514 which would also put it back into the Bollinger weekly uptrend channel.
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(Ewen Chew is a market analyst at Reuters. Opinions expressed are his own. Edited by Sonali Desai)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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