USD/CNY to move higher later this year – Nordea Markets

According to the Research Team at Nordea Markets, positive signals from the trade dispute between China and the US this month have led to a strengthening of the CNY. They do not share in this optimism and expect more weakening beyond the 1 October celebrations.

Key Quotes: 

“After a record weakening in August, the CNY has strengthened in the past few weeks on the back of encouraging gestures from both sides of the trade talks. In reaction to Trump's decision to delay tariffs from 1 to 15 October, China announced exemption of tariffs on US soybean and pork and (once again) promised to support purchases of the products by Chinese companies. This show of goodwill may continue for the rest of the month, while China's focus will be on the National Day celebrations on 1 October.”

“Another powerful tool to offset decreasing exports due to increasing tariffs is to let markets take the CNY even lower. We have argued before that this is unlikely to be a strong and sudden move, in order to keep capital flows and financial markets in check. The fixing rate over the past few weeks shows Beijing's dedication to stabilising the currency. We therefore forecast a gradual weakening path.”

“Given the pace of depreciation we saw in August, we expect that with further escalation in the trade war, the USD/CNY will move higher later this year. Concerns over capital outflow call for a gradual path.”