USD/CNY seen higher in the near term – Danske Bank

Allan von Mehren, Chief Analyst at Danske Bank, sees the pair edging higher in the short term horizon.

Key Quotes

“We look for USD/CNY to move higher to 6.6 in 1M and 6.65 in 3M. First, the cross is oversold technically in our view, 2) the removal of the reserve requirement ratio on buying of foreign currency forward should ease the appreciation pressure and 3) the market has positioned for a strengthening of CNY ahead of the 19th National Congress of the Communist Party. This should unwind after Congress (starts 18 October - runs for a week)”.

“From 3M to 12M we look for USD/CNY to trade broadly sideways around 6.7 as two opposing forces affect USD/CNY. On the one hand, we expect a Chinese slowdown and the recent easing of capital restrictions to weigh on CNY vs USD. On the other hand, we expect further USD weakness which should support CNY. Against the EUR we continue to look for weakening to 8.38 on 12M from 7.80 today and continue to recommend EUR-based corporates hedge CNY receivables”.