USD/CNY: Rise reflects US dollar strength - Danske Bank

According to analysts from Danske Bank, the rise in the USD/CNY during the past month is based on a stronger US dollar. They see the pair moving to the upside in the medium term on the back of CNY weakness. 

Key Quotes: 

“The trade-weighted USD has strengthened close to 5% over the past month, whereas the move in USD/CNY is only around 1.6%. This is also reflected in the CNY being stronger versus the EUR compared to a month ago. While capital outflows have picked up in the past months, the main driver of the recent USD/CNY move is thus USD strength. This in contrast with the rise in USD/CNY from August 2015 to July 2016, which was part of a broader CNY weakening.”

“There is no sign that China is intervening to stem the move in USD/CNY. This would show up in higher CNH money market rates but these are actually lower this week. It partly explains why the rise in USD/CNY is not associated with a risk-off move as was the case in January and over the summer when USD/CNY also moved up.”

“We continue to look for the CNY to weaken over the coming year. However, we expect it to be broader-based CNY weakness due to fading growth momentum in 2017 and increasing financial risks from a sharp rise in corporate debt and growth in shadow financing.”

“We look for USD/CNY to move to 7.1 +12m (current 6.77) and EUR/CNY to move to 8.38 +12M (current 7.37).”