USD/CNH to drop substantially towards 6.20 by end-Q4 – CIBC

USD/CNY and USD/CNH have now both traded below 6.4000, resuming a push lower after previous consolidation and correction. Messaging on yuan appreciation from policymakers has not indicated immediate concern – economists at CIBC Capital Markets anticipate further CNY and CNH gains.

Further gains developing in the Chinese yuan

“To the degree that foreign demand for Chinese bonds can take up any slack from moderated credit expansion onshore, then Chinese activity levels can remain strong, and CNH appreciation will then be validated by another factor.” 

“There were some reports of ‘smoothing’ operations around the 6.4000 level, i.e. buying at the direction of monetary authorities in order to slow the market moves. But we note that the yuan sits only mid-table of gainers against the USD YTD, having gained around 2%. There is nothing we consider in that, or in the recent pace of moves that suggests monetary authorities will be aggressive in slowing present appreciation. Neither is there anything in recent economic data that suggests the currency cannot rally further.” 

“Our medium-term measured target for USD/CNH on the break below 6.4000 is 6.2131. We forecast USD/CNH at 6.2000 by end-4Q.”