USD/CNH declines from 6.9300 amid slower growth in Chinese Trade Balance data

• USD/CNH has dropped from 6.9300 amid the release of the better-than-projected Chinese Trade Balance data.
• China’s Trade Balance report indicated that domestic demand is not showing signs of recovery.
• Credit distribution figures by US banks have started declining due to weaker demand and tight credit conditions.

The USD/CNH has dropped from 6.9300 after the release of the better-than-anticipated China Trade Balance data. China’s National Bureau of Statistics (NBS) has reported a bigger-than-expected growth in the trade surplus as imports slump in the reported period.

Trade Balance (in $ terms) came in at +90.21B versus +71.6B as expected and +88.19B recorded previously. The exports jumped by another 8.5% in the reported period vs. the 8.0% expected but lower than the prior acceleration pace of 14.8%. However, the country’s imports fell by 7.9% while the street was anticipating a stagnant performance. In the prior period, imports dropped by 1.4%.

Scrutiny of China’s Trade Balance report indicates that domestic demand is not showing signs of recovery despite monetary and fiscal support from the administration. No doubt, export figures have beaten expectations but a slower growth against the prior pace is indicating a challenging outlook for the economy. This week, Financial Times reported that the European Union is planning sanctions on Chinese firms for supporting Russia's war on Ukraine. An occurrence of the same could weigh some burden on China’s exports ahead.

Upside pressure in the USD/CNH pair has also been fueled by a mild correction in the US Dollar Index (DXY). The USD Index is struggling in extending its recovery above 101.50 amid soaring uncertainty over US Consumer Price Index (CPI) data, which will release on Wednesday.

A steady US inflation report is expected to keep expectations of a pause by the Federal Reserve (Fed) intact as credit disbursement figures by US commercial banks have started declining due to weaker demand and tight credit conditions.