CNY: Strengths and weaknesses – Commerzbank

At first glance, the Chinese figures once again look impressive. GDP grew by 5.2% in the second quarter compared with the previous year, and industrial production even rose by 6.8% in June – significantly faster than most analysts had expected, Commerzbank's FX analyst Volkmar Baur notes.

PBoC to have no problems keeping USD/CNY stable

"However, the Chinese data also reveal a number of weaknesses, particularly on the demand side. Retail sales disappointed once again with year-on-year growth of only 4.8%, and investment figures for June were well below expectations. Officially, only figures covering the entire period since the beginning of the year are published. However, if June is isolated, it can be estimated that investment probably fell last month compared with the previous year."

"This is due in particular to the continuing weakness in the real estate market, where there are still no signs of improvement. However, weak domestic demand continues to drive China's net exports higher. Data released on Monday showed a further increase in the trade surplus to 114.8 billion USD, the second-highest surplus ever recorded after January this year."

"As a result, Chinese state banks have been able to continue building up foreign exchange reserves in recent weeks, even though the central bank has reduced them slightly. Overall, it can therefore be assumed that the Chinese banking system has prevented a stronger appreciation of the CNY in recent weeks. The PBoC should therefore have no problems keeping USD/CNY stable in the coming weeks, if it so wishes."