USD/CNY to slump towards 6.15 by late-2021 – CIBC

Following consolidation in the last weeks of December, USD/CNH resumed its downside recently, making a new cycle low at 6.4120 on January 5. CNH and CNY appreciation is expected to continue even with overall trade hawkishness under Biden, economists at CIBC Capital Markets apprise.

Key quotes

“We forecast USD/China to reach 6.15 by Q4 this year and to be trading on a 5-handle by mid-2022.” 

“Support for Chinese currency gains will be a combination of ongoing strong economic performance, both outright and relative to major peers and the related demand for Chinese assets, both portfolio and FDI. A softer US dollar will be a significant influence on USD/China, although we also see gains for the yuan on a trade-weighted basis.”

“On overall intervention risks, so long as the pace of currency appreciation remains moderate, we consider the once strong interventionist mode of the PBoC is unlikely to be revived. Key to watch will be how the CNH tracks against other major currencies – neither too hot or cold.”

“The next leg to opening of the economy and capital account, and the internationalization of the currency, involves encouraging greater use of the yuan in trade settlement, permitting domestic investors to buy more foreign assets, and for foreign investors to easily repatriate funds. All support two-way flow.”

“Q1 2021: 6.40 | Q2 2021: 6.32”