USD/CNY: Rise reflects US dollar strength - Danske Bank

Matías Salord FXStreet

According to analysts from Danske Bank, the rise in the USD/CNY during the past month is based on a stronger US dollar. They see the pair moving to the upside in the medium term on the back of CNY weakness.

Key Quotes:

“The trade-weighted USD has strengthened close to 5% over the past month, whereas the move in USD/CNY is only around 1.6%. This is also reflected in the CNY being stronger versus the EUR compared to a month ago. While capital outflows have picked up in the past months, the main driver of the recent USD/CNY move is thus USD strength. This in contrast with the rise in USD/CNY from August 2015 to July 2016, which was part of a broader CNY weakening.”

“There is no sign that China is intervening to stem the move in USD/CNY. This would show up in higher CNH money market rates but these are actually lower this week. It partly explains why the rise in USD/CNY is not associated with a risk-off move as was the case in January and over the summer when USD/CNY also moved up.”

“We continue to look for the CNY to weaken over the coming year. However, we expect it to be broader-based CNY weakness due to fading growth momentum in 2017 and increasing financial risks from a sharp rise in corporate debt and growth in shadow financing.”

“We look for USD/CNY to move to 7.1 +12m (current 6.77) and EUR/CNY to move to 8.38 +12M (current 7.37).”

Author

Matías Salord

FXStreet

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

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