Chinese Yuan: Strongest in four years despite weak data – Commerzbank

Commerzbank's Volkmar Baur notes that Chinese economic sentiment declined in October as official manufacturing and non-manufacturing PMIs fell below 50. Construction new orders also dropped towards record lows. Input costs and producer prices indicate rising producer inflation. Despite this, USD/CNY slipped below 6.65, making the Chinese Yuan the strongest against the Dollar in over four years.

China's economic sentiment suffered a setback at the beginning of the fourth quarter. October saw both the manufacturing and overall economy's purchasing managers' indices fall below the 50-point expansion level, reversing September's recovery. Only the privately compiled RatingDog PMI remained above the threshold, at 52. Services sector business activity index managed to stay at 50, while construction sentiment fell from 50.3 to 48.

Construction new orders hit 40, near its all-time low outside the pandemic period. Input costs are rising, with producer price inflation at 0.3% month-on-month, potentially increasing further in October. The CNY remains strong against USD, with USD/CNY falling below 6.65. This put the Chinese Yuan at its strongest level against the US dollar in more than four years, continuing its slow, managed appreciation.