USD/CNY forecast at 7.00 in 12M -  Danske

Analysts from Danske Bank, forecast that the USD/CNY will rise to 7.00 in a 12 month period (revised up from 6.85).

Key Quotes:

“We see a rising risk that capital outflows could pick up again causing negative headlines and adding to the fragility of current market sentiment. This could happen if the market starts to see the hands-off approach from the People’s Bank of China (PBoC) as an attempt to do a ‘stealth devaluation’. Hence, the PBoC may very well be challenged soon and have to step in with intervention and falling FX reserves as a consequence.”

“We expect the depreciation pressure on the Chinese currency to continue over the coming years: (1) Chinese debt is likely to continue to increase adding to the debt worries; (2) growth is expected to soften a bit again in 2017 following the cyclical recovery in 2016 and monetary policy will have an easing bias for a very long time. Rate cuts are expected back on the agenda in 2017; and (3) we look for the Fed to resume tightening next year after stepping to the side line in response to the Brexit.”

“We revised our forecasts for USD/CNY higher to 6.7 in 3M (from 6.6), 6.8 in 6M (from 6.7) and 7.0 in 12M (from 6.85). Against the EUR, we continue look for around a 10% weakening of the CNY in 12M.”

“However, it is not just about USD strength. The CNY basket has also continued the gradual depreciation as the CNY has also weakened versus the JPY as well as versus AUD and NZD.”