Unexpected US dollar strength sent USD/CNY higher in June. In the view of economists at MUFG Bank, more risk factors in the second half of the year could restrain the degree of China’s economic recovery, implying a volatile USD/CNY.
The movement of US dollar will continue to play an important role in USD/CNY
“For the next couple months, we don’t expect persisting depreciation pressure on CNY against USD but in fact, we forecast a weaker USD for the remainder of 2021 despite the recent strengthening of USD.”
“Compared with H1, we see increasing factors in H2 which could restrain economic growth. Strong exports were an important driver of China’s growth in H1. The recovery in goods supply shortages and the potential rotation from goods consumption to services consumption in both the US and Europe, means China’s exports growth will be adversely affected. Also sporadic epidemic in some areas could constrain the rebound of domestic demand and private investment, the performances may not be able to fully offset the exports growth’s slow-down. We expect China’s growth to moderate further in Q3 and Q4.”
“Considering a potential weaker US dollar in H2 and the risks surrounding the development of the Chinese economy, we expect USD/CNY to be range bound over the remaining months of this year with higher volatility. During H1 2022, as we expect the USD gets a lift from building speculation on rate hikes in 2023, combined with less supportive fundamentals and possible more balanced trade balance, we expect USD/CNY to increase to 6.6000 by the end of 2022H2.”