China announced inflation and money supply stats today. CPI fell to %1 from %1.1 and PPI continues to show inflationary pressures with %9 (previous: %8.8). USDCNH is still pricing near the long-term trend line that started in early 2014. Also, the current price is near the minus 2 standard deviation of the 2014 to date auto regression level which can be seen as quite low. But long term uptrend is not broken yet and fundamentals may be changing for USDCNH.

Local demand is in danger too. China had a good record of Covid-19 cases since summer 2020 despite being the origin of the virus. But that may be changing with the delta variant. New cases start to worry and everyone knows how strict can the China’s restrictions be. If local and overseas demand slow for a bit that may give a chance for USDCNH to rise again.

On the supply side, FED’s incredible supply shock at the beginning of the pandemic shows its effect throughout the one and a half years. FED is still supporting the markets with $120 billion asset purchases and lowest rates but that may be changing soon. PBOC on the other hand is more hawkish than the FED. In their recent press release after the inflation data, they said the surge in PPI is likely temporary but may persist in the short-term, and inflation is controllable because PBOC has normalized money supply since May 2020. As shown in the chart above, indeed M2 money supply growth normalized by China while US money supply expanded more than 3 times relative to China (percentage-based). 

The effects of money supply shocks may normalize over the next 1.5 years as FED is heading for tapering and the USDCNH uptrend may hold because of that.

USDCNH must stay above the long-term trend 6.4140 and break the 6.53 and 6.60 resistance to start the next bullish wave. The 200-day moving average, 6.49 can create resistance in the short term.

6.45 can be followed as a support in the short to medium term for down moves.