USD/CNY: Yuan to withstand coming storms, 6.85-7.00 trading range – MUFG

The CNY rally is continuing as the domestic economic recovery strengthens and the market is discounting escalating geopolitical risk. On the other hand, an omen of the rising digital iron curtain and a potential flashpoint, if ignited, could weaken CNY and test the forecast range’s upper bound. All in all, economists at MUFG Bank expect USD/CNY to trade within a 6.85-7.00 range.

Key quotes

“High-frequency signals suggesting China’s rapid economic rebound have extended into the second half of the year, propelled by recovering foreign demand and strong fiscal support, fueling the CNY rally. Market participants continued discounting escalating geopolitical risks between the two global giants as the CNY rally against the dollar continued. Towards the end of August, USD/CNY likely will continue trading within the 6.95-7.00 range, with a downside bias.”

“We might see the digital iron curtain rising should Chinese policymakers produce a similar ban on US software applications. Consequently, we would see two larger separate intranets, which would not be good news for the internationalization of the CNY and could weaken the CNY.”

“In the last three years, the managed floating CNY system partially smoothed out significant global FX market fluctuations when the counter-cycle factor was turned on. Therefore, we would like to suggest that USD/CNY will likely trade within the 6.85-7.00 range.”