The USD/CNY exchange rate moved sideways on Friday after China published encouraging manufacturing and services PMIs. The pair remained at 7.20, where it has been stuck at in the past few weeks as the focus shifts to an important leadership meeting in Beijing.

The USD/CNY remained in a consolidation phase after China released the latest PMI numbers. According to Caixin, the country’s manufacturing PMI figure rose from 50.8 in January to 50.9 in February, beating the analysts’ estimate of 50.7. 

That figure meant that the Chinese manufacturing sector was starting to come back after going through a prolonged period of contraction. 

However, a separate report by the government revealed that the manufacturing PMI dropped from 49.2 in January to 49.1 in February. The non-manufacturing PMI rose to 51.4, helping push the composite PMI figure to 50.9.

China’s economy is still facing major headwinds as the key sectors that drove its growth wane. For example, the real estate sector is on its deathbed following the collapse of companies like Country Garden and Evergrande.

Also, the banking sector is being overstretched as delinquency risks among customers rise. Banks like HSBC and Standard Chartered reported huge provisions for bad debt in their most recent results.

The next important catalyst for the USD/CNY pair will be the upcoming Two Sessions meeting in Beijing. That meeting will see the government set its priorities for the year and the growth target. Analysts at ING expect the target to remain at 5%.

The other crucial news to watch will be the ISM manufacturing numbers from the US. Economists expect the data to show that the manufacturing PMI improved from 49.1 in January to 49.5 in February. 

That report will come a day after the US published encouraging PCE inflation data. The data showed that the PCE index rose by 2.4%, down from the previous month’s 2.6%.

USD/CNY chart by TradingView

Turning to the daily chart, we see that the USD to CNY exchange rate has moved sideways in the past few days. It has remained stuck at the 23.6% Fibonacci Retracement level. Also, the pair was consolidating at the 50-day and 25-day moving averages while the Average True Range (ATR) has nosedived. The ATR indicator is a good measure of an asset’s volatility.

Therefore, the outlook for the pair is neutral for now. I expect that it will remain in this range ahead of the Two Sessions meeting set for March 5th.

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