USD/CNY: Yuan appreciation to slow down and consolidate around 6.40 – CIBC

The shift in pricing for Fed rate hikes coupled with some apparent loss of economic momentum domestically have combined to see USD/CNH and USD/CNY track higher into a near-term consolidation range of 6.45-6.50. Analysts at CIBC anticipate some near-term consolidation for CNY and CNH and have revised forecasts for more modest appreciation accordingly.

Yuan gains halted by USD strength 

“Changing rate expectations have the potential to narrow yield differential away from CNH favour, though there is still some way to go (10yr bond China 3.06 vs US 1.34). The Long-term relationship of USD/CNH to the spread between 10-year yields is near to equilibrium at present levels.” 

“China warnings of one-sided moves below 6.40, and ongoing efforts to use the occasion of strong growth this year to rein in levels of domestic leverage levels, have counted against forecasting standout CNH outperformance. Still, the CNH and CNY are amongst the better-performed major currencies against the USD post the FOMC, off by only 0.6%.”

“Long-term GDP divergence and outperformance against other major economies continued strong demand for China assets, including for bonds, which helps to counter a slower pace of domestic credit expansion, instructs further medium-term CNH appreciation.”