TD Securities described China’s April economic data as weak, linking it to higher oil prices and low consumer sentiment. It said the People’s Bank of China (PBoC) is likely to stay cautious on monetary easing.
Higher oil prices were reported to be putting pressure on traditional industries, including chemicals. It said growth in high-tech areas such as communication equipment and pharmaceuticals has continued and has offset part of the drag.
April Data Signals Targeted Support
Consumer sentiment was described as weak, with sluggish consumer goods sales and lower discretionary spending. It noted that the “618 festival” and trade-in programme subsidies could give short-term support.
TD Securities expects Beijing to use targeted fiscal stimulus, focused mainly on infrastructure rather than broad measures. It added that the weak April results may lead to faster work on Board of Trade details aimed at boosting exports later in the year.
It said the latest data may unsettle CNY bulls but may also revive stimulus discussion. It expects the PBoC to defend 6.8 in USD/CNY and said this could include raising the FX Reserve Requirement Ratio (RRR) to 6%.
Given the weak economic data for April, we see a familiar pattern emerging. Sluggish retail sales, which government data from last month showed grew by only 2.1% year-over-year, and industrial output hampered by high oil prices are weighing on sentiment. We believe this reinforces the case for targeted government support rather than broad-based stimulus.
Policy Defense And Options Positioning
Looking back, we saw how the issuance of special sovereign bonds throughout 2025 helped shore up infrastructure investment, and we expect a similar playbook now. This renewed talk of stimulus should provide a floor for the yuan, even if the underlying economic picture remains murky. Therefore, we do not expect a significant currency depreciation from current levels.
The People’s Bank of China appears committed to defending the 6.8 level in the USD/CNY pair, a line it has held firmly in the past. With the dollar-yuan exchange rate currently hovering around 7.23, a move to defend a new psychological level is expected. A potential hike in the FX Reserve Requirement Ratio would be a strong signal, making it more expensive to short the yuan.
For derivative traders, this creates an opportunity to capitalize on a capped upside for USD/CNY in the coming weeks. Selling call options with strike prices at or slightly above the key defensive level could be an attractive strategy to collect premium. This position benefits from the view that central bank action will suppress volatility and prevent any significant breakout to the upside.
