USD/CNH and USD/CNY plummet as copper and iron ore prices rise

The renminbi has staged a comeback as investors predict that the Chinese economy has bottomed. The USD/CNH pair crashed to a low of 7.2097, the lowest point since August. It peaked at 7.3655 in September. Similarly, the USD/CNY exchange rate dropped to 7.2028, also the lowest point since August. 

There are signs that the Chinese economy has started rebounding after going through major woes earlier this year. Broadly, some leading indicators show that things are starting to improve. For example, the price of copper has recovered by over 7% from its lowest level this year.

Similarly, iron ore, which is used to manufacture steel, has jumped to $129.30, the highest point since March 13th. It has risen sharply from the year-to-date low of $91.5. Copper and iron ore are used widely in China and are often seen as barometers of the economy.

$CNH offshore yuan surging ~400pts. In the past month CNH had surged ~1,400pts — just when consensus was one-sided bearish. pic.twitter.com/GaIJWmeLDM

— Hao HONG 洪灝, CFA (@HAOHONG_CFA) November 17, 2023

This performance seems to confirm the latest economic data from China. On Wednesday, data by the National Bureau of Statistics (NBS) revealed that China’s industrial production bounced back in October. 

Industrial production rose by 4.6% in October after rising by 4.5% in the previous month. At the same time, consumption rebounded, with retail sales soaring by 7.6%, helped by auto and restaurant sales. 

The key challenge for the economy was the construction sector, which has faced numerous challenges recently. Well-known companies like Evergrande and Country Garden have seen their sales plummet in the past few years. They are both hanging on a thread.

The USD/CNH and USD/CNY have also dropped as China continues dumping its holdings of American stocks and bonds. The most recent data shows that the government has sold bonds worth over $500 billion in the past few months.

China continues to dump US Treasuries by the amount of tens of billions per month.

In August, China unloaded another $16.4 billion of US Treasuries.

Since their peak roughly a decade ago, China has unloaded nearly $500 billion of US Treasuries.

All as the Fed raises rates and… pic.twitter.com/5qrvaBZTKe

— The Kobeissi Letter (@KobeissiLetter) October 21, 2023

China has sold these assets in a bid to boost its domestic economy and because of the ongoing expansion of America’s debt market. The US debt has jumped to over $33.7 trillion in the past few months and Treasury has pledged to raise over $1 trillion in the coming months.

Tensions between China and US have not eased even after the latest Biden and Xi Jinping meeting. And in the ongoing campaign cycles, most Republican contenders have expressed their hope to go tough on the country.The USD/CNY and USD/CNH pairs have also dropped because of the ongoing US dollar sell-off after the latest inflation data. The numbers showed that the headline consumer price index dropped to 3.2% in October.

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