CNY upside appears limited – UOB

FX Strategists at UOB Group assessed the prospects for the Chinese currency.

Key Quotes

“Two key developments last week propelled the CNY to further strength, leading to the selloff in USD/CNY below the key 6.30 level. First was the announcement that Chinese local currency government bonds will be added the Global Aggregate Index. Second was the launch of the CNY denominated crude oil futures in Shanghai”.

“While both developments are important steps to further the internationalization of the CNY and add to the CNY’s longer term appeal, it is worth noting that after the strong rally over the past few months, the CNY has indeed strengthened noticeably on a trade weighted basis”.

“Overall, we maintain our base case that CNY and Asian currencies have limited room for further strength and that further US monetary policy stabilization will help USD/Asia to stabilize in 2H. We maintain our forecast for USD/CNY at 6.45 by 4Q18”.