USD/CNY: We expect the bullish trend to continue - Danske Bank

Analysts from Danske Bank point out today the USD/CNY jumped to the highest in six years and they see more gains in the pair over the long term.

Key Quotes: 

“USD/CNY has jumped higher to close to 6.72 after the market opened again following the Chinese holiday last week. The move has gained some attention as the 6.7 level was seen as an important one that the People’s Bank of China (PBoC) was defending.”

“However, we never expected the 6.7 level to hold and see this as business as usual. It comes on the back of broad USD strength as the market is increasingly pricing in a Fed December hike. The CNY has been stable against the EUR and the same goes for the basket that China is now managing against. It is also in line with the usual pattern seen over the past two years, i.e. that CNY moves in short sudden moves followed by a period of stabilisation.”

“We expect the weakening trend of USD/CNY to continue and target 7.1 on +12M.
 
“Five factors are working against the CNY: (1) growth is set to continue to be under pressure in coming years, (2) high debt requires Chinese rates to stay low to keep debt servicing costs down, (3) there will be a gradual rise in US rates as the Fed hikes again, (4) net FDI flows have turned negative as China is increasingly investing abroad and (5) the risk of a financial crisis keeps rising”