The Chinese Yuan weakened after the nation released August’s inflation metrics, disappointing the board. The Consumer Price Index (CPI) clocked in at 2.5% y/y versus 2.8% seen and down from 2.7% prior. The Producer Price Index (PPI), a gauge of wholesale inflation, crossed the wires at 2.3% y/y versus 3.2% seen and down from 4.2% prior.
While there was no significant milestone for the CPI gauge, the PPI print was the lowest seen since February 2021. Generally, the data continues to show signs of a slowing economy, allowing for more supportive measures from the government. A few weeks back, China announced an extra 1 trillion in stimulus to cope address diminishing growth and a wobbly housing market.
As of now, the megacity of Chengdu has extended its lockdowns without offering an end date. The People’s Bank of China (PBOC) has been cutting interest rates to help the nation cope with ongoing Covid breakouts and lockdowns. A direction that is different from other central banks that are busy tightening rates to curb inflation.
The monetary policy divergence between the Federal Reserve and PBOC offers a strong bullish fundamental case for USD/CNH. Recently, the currency pair has hit its highest since July 2020. With the Fed in a blackout period until its next policy announcement later this month, the US Dollar is awaiting local CPI data on Tuesday.