Renminbi robust despite falling stocks and rising US dollar

The Easter holidays in Europe and the absence of scheduled publications in the United States ensure a calm trading session on Monday. Only a batch of data from China provides some volatility.

Chinese GDP grew 4.2% YoY in Q1-22.
Chinese GDP grew 4.2% YoY in Q1-22.

Chinese stocks were under moderate pressure on Monday, and the Chinese renminbi is little changed since the start of the day. As many expected, investors feared the People’s Bank of China might not ease monetary policy on Friday or Monday. Additionally, retail activity is down – a worrying signal of the impact of the lockdowns.

According to the published statistics package, the economy grew by 1.3% in the and is 4.8%. These data are significantly better than the forecasts, which were counting on 0.6% and 4.2% respectively.

Sharp drop in retail sales in China amid growing industrial production
Sharp drop in retail sales in China amid growing industrial production

added 5% in March compared to the same month a year earlier, better than the 4.0% expected. However, the 3.5% year-on-year decline in response to last month’s strict lockdown measures caught our attention. To a large extent, they persisted and even intensified in some areas during the first half of April.

At the same time, the resilience of the Chinese renminbi cannot be overlooked. To a large extent, its ability to resist firming is due to its tighter monetary policy. China seems to be paying more attention to currency dynamics and economic indicators, disregarding stock market weakness.

Major stock indices – , , – are now below pre-pandemic levels, in stark contrast to the 8.5% rise against the dollar near the low of the past six and a half years. The renminbi’s ability to withstand a rising dollar environment is a demonstration of the strength of the Chinese currency.

If the USD trend reverses and pulls back from its highs, we could see a serious RMB rally from the current level of 6.38 with a potential renewal of the 2018 lows at 6.25 or even the 2015 lows. when the pair is trading below 6.20.