USD/CNH: towards a return of the dollar to its 2019 peaks

Dollar jumps against yuan weakened by multiple crises and monetary policy

USD/CNH price rallied to a 2-year high this week and may continue to climb to its 2019 highs as the Chinese economy faces multiple unprecedented crises.

The Chinese economy is facing an unprecedented real estate crisis. Chinese developers are in the midst of a liquidity crisis and are looking to deleverage, thus halting certain developments. As a result, the number of projects under construction and housing sales are falling, prices are stabilizing or even falling in some regions, which is affecting the confidence of Chinese households.

At the same time, the country has been experiencing an unprecedented energy crisis for several weeks due to the worst drought in six decades. Electricity production is no longer sufficient to cover consumption, pushing Beijing to ration electricity, which affects more and more industrialists.

Finally, the Chinese economy is still affected by the “zero contamination” health policy defended by Xi Jinping.

Although the Chinese government has tried to support the economy with multiple stimulus measures, the outlook remains bleak. Goldman Sachs now forecasts a 3% growth rate for the Chinese economy this year, which would be the second-lowest growth rate since at least 1992 (after 2020).

Faced with these crises, the yuan is naturally coming under increasing pressure against the dollar, especially as the Chinese currency is penalized by the divergence of monetary policies, the Federal Reserve drastically tightening its policy while the People’s Bank of China is easing it.

USD/CNH weekly price chart – key levels


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