COVID restrictions and commitment to Zero-COVID can stay in place for the foreseeable future
Yuan crept higher on Wednesday and ignored the weak economic data from China, and uncertainty over the country’s COVID policy.
Most analysts revising lower their GDP forecast for China, as uncertainty increases over the country's Covid restriction policies. We can see the reflection of these restrictions in China and weaker economic activities across the world on the PMI numbers. As it was expected, both the official manufacturing and non-manufacturing PMIs decreased in November. Manufacturing PMI eased to 48.0 from 49.2 in October, and Service Purchasing Manager Index also decreased to 46.7 from 48.7 seen in October. While both manufacturing and Non-Manufacturing PMIs decreased, as a result, the Chinese Composite PMI also November eased to 47.1, down from 49.0 in October.
This softening in the PMIs into contraction territory reinforces the fact that China's economy has not been able to gather sustained economic momentum for most of 2022, and most probably it would not be able to reach its primary goals.
Despite recent protests in many cities across the country, we believe COVID restrictions and commitment to Zero-COVID can stay in place for the foreseeable future. This means that full lifting of COVID measures is imminent, and until we see a more explicit turn toward lifting Zero-COVID, growth rates should remain relatively low.
From the technical point of view, USDCNH has strong support at 7.00. In the smaller timeframes, USDCNH has already entered a strong downtrend, but in the bigger picture, bears will need to breach under 7.00. Next support under 7 sits at 6.85, as you can see in the below daily figure.
