USD/CNY: Upside bias on divergent monetary policy between China and US – MUFG

After a volatile month’s movements, USD/CNY finished largely unchanged in July. Looking ahead, economists at MUFG Bank are positive on the pair as weaker growth prospects and recent stock market volatility would weigh on the Chinese yuan.

Steady deceleration for the economy in near-term

“The weaker growth outlook and recently increased market volatility will weigh on CNY against USD in near term. Another theme that would work against CNY against USD dollar for the rest of H2, is the divergence between China’s and US’ monetary policies.”

“According to our rate strategist, the latest FOMC meeting suggests that the risk for a Sept FOMC launch of taper has come down a tad, as the Fed would still wait to see more date be certain about the ‘substantial further progress’ on the jobs front, but it is possible that tapering could be a November/December event instead.”