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.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
