USD/CNY: A smaller increase ahead - Danske Bank

Analysts from Danske Bank revised lower their forecast of USD/CNY and expect it to trade at 7.1 in 12 months. 

Key Quotes: 

“We revise lower our outlook for USD/CNY and now forecast a smaller increase on 12M to 7.1 (previous 7.3). China has tightened the grip on USD/CNY and in combination with a weaker USD, the upward pressure on the cross had eased.”

“Apart from the tighter management of the currency some other factors have supported the CNY lately: 1. Broad based USD depreciation 2. Capital flows pretty much sealed now 3. Relative rates moving in favour of CNY despite Fed hikes.”

“We continue to forecast a higher EUR/CNY but not as much as before given the changed expectation for USD/CNY. We still look for a weaker CNY than the market, though, and continue to recommend hedging of CNY income for EURbased corporates and investors.”

“While the CNY-CNH spread can show deviations for shorter periods we continue to expect it to trade close to zero most of the time.”