BUZZ-COMMENT-A stalled economy isn’t the yuan’s biggest problem

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)

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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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