The USD/CNY exchange rate retreated from the year-to-date high of 7.3500 on April 10 to a low of 7.20 as traders focused on the trade relations between China and the United States.
US and China trade relations
The US and China have been on a conflict since Donald Trump became president. One of his first actions was to add tariffs on Chinese goods, a move that he believes will help to reduce the trade deficit between the two countries.
The crisis escalated on the so-called “Liberation Day”, when he imposed 34% tariffs on Chinese goods. In the aftermath, the conflict escalated and tariffs surged to 145%, while China brought its levies to 125%.
These concerns waned in May after US and Chinese officials met in Switzerland and decided to cool things down. They reduced tariffs on each other and agreed to reset the relationship.
Recently, however, there are signs that the crisis is escalating again, as the Trump administration has made unilateral decisions. It has announced export controls on key sectors, including aviation. And Marco Rubio plans to expel thousands of Chinese students from the US.
All these issues are having an impact on both economies. Data released on Saturday showed that the manufacturing PMI rose from 49 in April to 49.5 in May, while the non-manufacturing figure fell from 50.4 to 50.3.
However, there are signs that the Chinese economy will do well over time as it focuses on doing business with other countries. Also, China is adapting well to technology curbs, with companies like Huawei building high-quality chips.
USD to CNY key data to watch this week
There will be several important macro data from the United States and China this week. The first one will come out on Tuesday, when Caixin will publish the latest manufacturing PMI data.
S&P Global and the ISM will release their US manufacturing PMI data on Wednesday. These numbers will provide more color on the state of the American economy as tariffs continue.
The most important data will be related to the US labor market. Analysts expect the data to show that the US economy created 110,000 jobs in May, a big jump from the previous month’s 62,000.
The Bureau of Labor Statistics (BLS) will publish the latest nonfarm payrolls on Friday. Analysts expect the data to reveal that the economy added 130k jobs, down from 177k in April, while the unemployment rate remained at 4.2%.
USD/CNY technical analysis
USD/CNY chart | Source: TradingView
The daily chart shows that the USD to CNY exchange rate has remained under pressure in the past few weeks. It formed a double-top pattern at 7.3318, and has now moved below the neckline at 7.2185.
The pair has also formed a death cross pattern as the 50-day and 200-day Exponential Moving Average (EMA) crossed each other. Therefore, it will likely continue falling, with the next point to watch being at 7.1200.
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