The Chinese yuan was approaching resistance levels while traders speculate over China selling US debt.
USDCNY – Weekly Chart
USDCNY is approaching the recent resistance level at 7.31. A breakout from the recent range could see another leg higher in the pair.
March GDP growth figures are released on Wednesday at 10am HKT. The figures are expected to show a 4.1% annual growth rate but traders will be looking for early signs of a tariff hit. Retail sales and industrial production will also be released for the world’s second largest economy.
Meanwhile, investors have their eyes on the situation with the US dollar and treasuries. Chinese exchanges are said to have set daily restrictions on share sales by hedge funds and large retail investors, according to Reuters. Beijing is said to have stepped up support for its stock markets as the trade war expands.
A focus is being given to the decoupling of US treasuries with China thought to be dumping US debt and buying the yuan. Data on debt sales are not immediately available and traders are left to speculate.
The US Treasury Secretary Scott Bessent has also hinted at outright purchases by the department, rather than the Federal Reserve.
China is thought to have been intervening in the FX market, ordering local banks to sell dollars and buy yuan. Last week saw the offshore yuan plunge to a record low against the dollar, while the domestic yuan is also falling. China is looking to devalue the yuan and make its products cheaper, without doing it too rapidly.
The dollar’s status as the world’s reserve currency status could also be tested if foreign nations dump the country’s debt. The pause in tariffs for 90 days was meant to arrest a recent slide but fears still remain.
“You’ve seen a much slower pace of selloff in the renminbi than you’d expect, given the size of the shock to their system, so there’s clearly some sort of smoothing going on in the FX market, and to do that a central bank has to sell the US Treasuries and others to fund that FX intervention,” Mizuho bank analysts said.
