USD/CNY: Scope for declines ahead – MUFG

USD/CNY close to recent highs but macro backdrop should reduce upside risks, economists at MUFG Bank report.

Stabilising growth will help reduce USD/CNY upside risks

We still see risks of broader US strength over the short-term and hence in that regard, upward pressure on USD/CNY may well persist. However, there are signs that the policy steps taken over the summer could be helping to bring about some stability and may in turn help improve sentiment that limits the upside USD/CNY pressure.

We currently forecast USD/CNY at 7.15 at year-end and then breaking below the 7.00 level in H1 next year. 

China’s current account surplus and available source of the US Dollar we believe will help China to continue promoting USD/CNY ‘stability’ by ensuring no major breach higher from current levels. Recent policy actions will only help achieve that FX stability.