The yuan is weakening again versus the US dollar, partly driven by overall USD appreciation, explain analysts at Danske Bank. They look for USD/CNY to move to the upside during the second half of 2021.
Key Quotes:
“Signs of domestic slowing is more visible. We look for PMI’s to decline in H2 as the lift from US consumers is set to fade and growth in infrastructure and construction is falling. However, we look for higher credit and money growth in H2 as signalled in recent data, which should dampen growth fears. China surprisingly lowered the Reserve Requirement Ratio (RRR)leading to easier financial conditions. While the PBoC played it down it seems to reflect some concern over too much slowing in H2.”
“High correlation between EUR/USD and USD/CNY. But CNY stronger than explained by the USD currently. We look for the cross to move towards 6.70 in 12M.”
“USD/CNY decline coming to a halt as relative rates have stabilized. China’s easing bias and the Fed’s tightening bias favours the USD over CNY looking ahead.”
