USD/CNY faces downside pressure in the next months – UOB

The Chinese currency is expected to gather further buying interest in the medium term, according to Strategists at UOB Group’s Quarterly Global Outlook 3Q 2020.

Key Quotes

“Despite the renewed elevated political risk between the US and China, CNY is flat on the quarter (2Q) at about 7.09 /USD. While it is inevitable that US-China relationship would remain tense heading till into the US elections in November, the fact that both sides are still honoring the Phase 1 trade deal probably soothes nerves about the CNY. At the same time, the “world’s factory” is showing tentative signs that it has probably bottomed in the 1Q (-6.8%). Exports have stabilized to a modest growth (1.4% in May) while industrial production have flipped back to 4.4% y/y in May from an unprecedented 1.1% contraction in March. Manufacturing PMIs, both official and Caixin have both rebounded into expansionary territory above 50.”

“With the Chinese economy is on track for a firmer recovery in the 2H and assuming the US-China relations do not deteriorate beyond the current war of words, our previous view of a recovery in CNY in 2H remains intact. Our USD/CNY forecasts are updated to 7.12 in 3Q20, 7.09 in 4Q20, 7.05 in 1Q21 and 7.00 in 2Q21.”