USD/CNH likely to range trade in run-up to Washington talks due late next week, says Scotiabank

The USD/CNH currency pair is expected to range trade in the run-up to the Washington talks due next Thursday and Friday, according to the latest research report from Scotiabank.

China’s official manufacturing PMI rose to 49.8 in September from 49.5 a month ago, which could be attributed to an increase in both output and new orders. The output sub-index increased to 52.3 from 51.9 in August, while the new orders sub-index jumped to 50.5.

In the meantime, the nation’s private Caixin manufacturing PMI advanced further to 51.4 in September from 50.4 the previous month, likely due to the US delaying tariff hike on some Chinese products and China’s stimulus measures unveiled earlier.

As is known, the official PMI survey typically polls a large proportion of big businesses and state-owned enterprises (SOEs), while the Caixin indicator features a bigger mix of small- and medium-sized enterprises (SMEs). Going forward, more stimulus measures are expected to be rolled out by the PBoC to spur economic growth given China’s subdued credit supply growth, the report added.

The Chinese central bank said in its Q3 monetary policy implementation report released last Friday that it will keep prudent monetary policy with an appropriate balance between easing and tightening, strengthen counter-cyclical adjustments and noticeably bring down real interest rates with market-based reforms.

In addition, US factory activity contracted for a second consecutive month, adding to growing evidence of a global manufacturing slowdown and raising concerns over US economic growth outlook, Scotiabank further noted in the report.

The Institute for Supply Management (ISM) said on Tuesday that its US manufacturing index fell to 47.8 in September, the lowest since June 2009, from 49.1 in August. China continues showing a goodwill gesture ahead of the 13th round of the high-level US-China trade negotiations set for October 10-11.

On the US side, White House Economic Adviser Peter Navarro told Fox Business on Tuesday that "We’re going to welcome Liu He here on October 10." Navarro on Monday characterized recent reports that the US is considering restrictions on Chinese companies as grossly inaccurate.

Meanwhile, US Senate Majority Leader Mitch McConnell told CNBC on Monday that the trade war with China has been "very tough" on farmers in the US and that "I hope we can get a conclusion to this sometime soon because rural America really needs it," the report also mentioned.