China: PMIs decline, PBoC comfortable with USD/CNY trading range above 6.40 - TDS

FXStreet notes that China's PMIs slipped in June, with both the manufacturing and services PMIs softening, the latter more sharply. However, all remained in expansion. Mitul Kotecha, Chief EM Asia and Europe Strategist at TD Securities, thinks PBoC is also comfortable with the current CNY trading range above USD/CNY 6.40.

“It was a mixed bag for China's purchasing managers indices (PMIs) in June. Weakness in services and a slight decline in manufacturing resulted in an overall decline in sentiment. The June manufacturing PMI slipped to 50.9 from 51.0 in May, still in expansion but at its weakest since February. Services continue to fare better, but the non-manufacturing PMI surprisingly slipped to 53.5 from 55.2 previously.”

“A weakening credit impulse as the authorities attempt to cap any build-up in leverage, especially in the real estate sector, is expect this to cap manufacturing sentiment.” 

“We think PBoC is comfortable with the current CNY trading range above USD/CNY 6.40. It is notable that CNY daily fixings vs. expectations have been more mixed recently, with no clear bias, unlike the bias for weaker fixings over previous weeks. Also, the deviations between market expectations and actual fixings have also narrowed, suggesting some form of temporary equilibrium for CNY. Ahead of tomorrow's 100th anniversary of the Chinese Communist Party, CNY has remained within a relatively narrow range and we see little change unless the USD broadly moves more sharply."