China's consumer inflation slowed to the weakest pace in two years in April. This is an indication that producer prices fell into deflation. So more policy stimulus is needed, and reflecting domestic demand will help increase the cost of the Chinese Yuan against the Dollar.

Producer prices in China fell 3.6 percent in April as commodity costs softened. And this figure shows that March's drop and deeper than economists had expected. Therefore, economic growth accelerated to a one-year high in the first quarter.

"There is still a big gap between demand and its pre-pandemic trend," said Xing Zhao Peng, senior China strategist at ANZ. He continued: "We do not think domestic demand can significantly import the farm, and it would take three to five years to rebound,"

Bloomberg economist Eric Zhu said: "An undershoot in China's April CPI inflation, which is almost to the vanishing point combined with deeper deflation in factory-gate prices. It provides more evidence that the economy isn't firing on all engines yet,"

Chinese Yuan Strengthens to 6.9101 Against US Dollar, Weakening on Growth Concerns and Widening Interest Rate Differential

"The weak data leave a window open for the People's Bank of China to ease policy further in coming months. This was before a broader rebound in demand for stokes prices in the year's second half,”

“Regarding this, it means that China is still in the stage of disinflation, not a deflation," added Eric Zhu to the media. What comes to China is the Consumer Price Index, weighed on last month's data.

Slower rises in food and energy costs pushed inflation lower. Meanwhile, China officials reported a higher-than-expected 90 billion dollar April trade surplus. It can bring the positive surplus for the Chinese Yuan.

"Investors are taking a conservative stance on the Yuan. They want to see broader evidence regarding China's recovery, fueled by external demand. This is no longer just about domestic consumption," said Kiyong Seong, macro strategist at Societe Generale in Hong Kong.

The People's Bank of China has set the midpoint rate at 6.9101 per US Dollar. The spot rate is currently allowed to trade with a range of 2% above. China's high trade surplus at $ 90 billion is a supportive zone, and equity flows could soften due to the reopening demand recovery.

Regarding the current zone, the Chinese market carefully and closely watches the US inflation data. The offshore Yuan is also trading 0.06% weaker than the spot. So that with the US-China competition map, the Fed could keep interest rates higher for longer.

8 Countries are Using China's Yuan, How Does the Chinese Currency Affect the US Dollar

China is now leaning up an effort to boost the Yuan's appeal as an alternative currency in international trade. This is also to challenge money in the face of US Dollar hegemony.

The push also involved attempts to boost Yuan for foreign exchange transactions. For now, the most intensive use of the Yuan for international trade is in Russia.

This is their way of being able to carry out trading activities. So even without using Dollars, Russia can still use the Chinese Yuan. Besides that, Saudi Arabia, Argentina, Brazil, Bangladesh, Pakistan, Iraq, and Thailand have also officially used the Chinese Yuan to transact trade.

The effect on the Dollar will make the trading frequency smaller, so the rate will decrease. The Consumer Price Index from China recorded a 0.1-year-on-year rose.

This is the lowest rate since February 2021, and the data showed that the signals are favorable for the second-biggest economy. And this will be an excellent start for the Yuan as more and more are trading it as an asset.