Biggest two-day drop in USD/CNY since 2005
|The US-China ceasefire in the trade war has led to the biggest two-day drop in USD/CNY since 2005, falling to 6.83 from 6.96 on Friday. Two things could be behind this - or a combination of 1) squeeze of short CNY positions after the Xi-Trump meeting and 2) intervention by China as part of the deal with China. US Treasury Secretary Stephen Mnuchin yesterday said that the US got a "strong commitment" from China to deal with currency devaluation.
Our current forecast is 7.20 on a 12-month horizon. However, we see downside risk to this forecast, as China will likely be committed to limit currency valuation as part of a trade deal with the US, which we expect will be done next year, see US-China trade: Ceasefire paves the way for the real deal in 2019 , 2 December 2019. We will update the USD/CNY forecast with our monthly FX Forecast Update in mid-December.
Chinese stocks have rebounded following the deal, while bond yields are lower.
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