The Chinese Caixin Manufacturing PMI missed estimates with 51.1, below estimates. Mitul Kotecha, Chief EM Asia and Europe Strategist at TD Securities, thinks the PBoC is aiming to keep the CFETS CNY stable at a relatively high level. This implies that USD/CNY will likely track USD moves closely.
PMI disappoints, but still in expansion
“China’s April NBS manufacturing PMI slipped to 51.1 (cons: 51.8, TD 51.7) from 51.9 previously. The non-manufacturing PMI fell to 54.9 (cons: 56.1) from 56.3 previously. The composite PMI fell to 53.8 from 55.3 previously.”
“We expect industrial activity to lose further momentum, albeit still remaining in expansion, but this will be counterbalanced by strengthening in the service sector.”
“We think the PBoC is aiming to keep the CFETS CNY stable at a relatively high level, likely aimed at encouraging further bond inflows (after a surprise outflow in March). This implies that USD/CNY will likely track USD moves closely and may be in for some more consolidation in the near term.”
“A key level to watch is the 23.6% Fibonacci retracement level of USD/CNY 6.4653. A break below will likely point to a more sustained gain in CNY vs. USD. “
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