USD/CNY seen around 7.08 in 1Q20 – UOB

The Global Economics & Markets Research team at UOB Group expect USD/CNY to move to the 7.08 region in the first quarter of 2020.

Key Quotes

“While a Phase 1 trade deal looks increasingly hopeful, structural differences between US and China trade stances (eg intellectual property, market access) make further progress beyond Phase 1 challenging. Together with growth risks of the Chinese economy which are still skewed to the downside, we continue to expect further weakness in the CNY ahead.”

“However, we have dialled our bearish CNY expectations (previous peak in USD/CNY forecast of 7.30 in 3Q20) in recognition of the progress in trade talks so far and the reduced risks of further trade escalation. Our updated forecasts for USD/CNY are 7.08 in 1Q20, 7.10 in 2Q20, 7.20 in 3Q20 and 7.20 in 4Q20. Overall, we still see value for investors to hedge their USD risks given the forward curve is still below our forecasts for tenures from 1Q20.”