USD/CNY to edge higher towards 6.80 on monetary policy divergence – Danske Bank

The Chinese yuan continues to trade strongly relative to other currencies. But a clear divergence of monetary policies in the US and China should eventually underpin the USD/CNY pair, economists at Danske bank report.

Uncertainty is high and risks are two-way

“We expect the resilience of CNY to continue as long as US consumers buy great amounts of goods from China. However, this effect should ease during 2022 and monetary policy divergence (PBoC easing, the Fed tightening) and a stronger USD outlook normally points to a higher USD/CNY.”

“We stick to our forecast of higher USD/CNY. Our forecast is unchanged at 6.45 in 3M, 6.55 in 6M and 6.80 in 12M.”

“We look for EUR/CNY to be broadly flat in the short-term before moving move towards 7.48 on 12M.”

“Uncertainty is high and risks are two-way. A continued high trade surplus could strengthen CNY further. However, the depreciation pressure once the Fed starts hiking could also be stronger than projected.”