USD/CNH steady near 7.1200 lows - BBH

USD/CNH is consolidating near cyclical lows as China's August activity data disappointed, with retail sales, industrial production, and investment all losing momentum. Beijing is set to rely on infrastructure spending to hit its 5% growth goal, a strategy supportive for commodities but negative for long-term rebalancing, BBH FX analysts report.

China August data underscores slowing growth

"USD/CNH is consolidating around recent cyclical lows near 7.1200. China's August real sector data was weak."

"In the first eight months of the year, retail sales growth slowed to 4.6% y/y (consensus: 4.7%) vs. 4.8% in July, industrial production growth eased to 6.2% y/y (consensus: 6.2%) vs. 6.3% in July, and fixed asset investment growth unexpectedly slumped to a five-year low of 0.5% y/y (consensus: 1.5%) vs. 1.6% in July. Excluding real estate development, fixed asset investment growth dropped to 4.2% y/y vs. 5.3% in July."

"Regardless, China will continue to lean on infrastructure spending to hit its 5% growth target because of structural constrains blocking a real shift toward consumption. That's good for commodity prices but bad for China's long-term economic health."