USD/CNY to surge higher towards 6.70 by year-end – ING

With the People’s Bank of China (PBoC) looking set to ease policy further, the USD/CNY is set to move through 6.50. Consequently, economists at ING have upgraded their USD/CNY forecasts to 6.55 and 6.70 by end-Q3 and end-Q4, respectively.

Expect yuan depreciation ahead

“We have revised USD/CNY to 6.55 and 6.70 by end of 3Q21 and 4Q21, respectively. The main reason is the divergence of monetary policies between the PBoC and the Fed. The PBoC has started RRR cuts, which successfully suppressed market interest rates.”

“We expect that further RRR cuts are likely because of the weakening of the Chinese economy. This contrasts with the Fed’s objective of tapering and ultimately interest rate hikes.”

“The non-manufacturing PMI in August fell below 50 at 47.5. This unexpected contraction in non-manufacturing activity should trigger supportive measures from the central government, e.g. speed up infrastructure projects.”