USD/CNY to stay close to 7.20 over the next years – Danske Bank

According to analysts from Danske Bank, the Chinese economy is facing a weak growth environment, but they don’t see a hard landing. They expect the Chinese Yuan to appreciate against the US Dollar on a 12 month horizon. 

Key Quotes: 

“The Chinese economy remains under pressure from the US-China trade war. Exports, private investments and private spending on durable goods in particular have cooled down, while economic stimulus has lifted infrastructure spending. Construction activity is robust as home sales are decent and a low inventory of homes for sale is keeping construction companies busy.”

“The People’s Bank of China (PBoC) has eased policy over the past year and we look for more easing in Q4 to support growth. The PBoC has used targeted lending measures towards the private sector and we look for more of this in the coming quarters on top of a further cut in the Reserve Requirement Ratio.”
 
“We expect the USD/CNY to stay close to 7.20 over the next years as the road to a trade deal will be difficult and downward pressure on growth is set to persist for some time. However, rate cuts by the Federal Reserve would temper CNY weakness. On a 12M horizon, we expect USD/CNY to move lower again on the back of a moderate Chinese recovery as uncertainty fades gradually.”