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Economist Ho Woei Chen, CFA, and Senior FX Strategist Peter Chia at UOB Group believe the Chinese currency faces prospects of further upside this year.

Key Quotes

“The CNY stays strong against the USD in the new year, gaining close to 1% at about 6.47 /USD year-till-date. This comes amidst a recent recovery of the broad USD against most G-10 and Asian FX underpinned by higher US Treasury yields. For 2021, we reiterate our view of further gains in the CNY backed by expectations of a sustained recovery in the Chinese economy this year together with stable monetary policy from the PBoC. We have recently raised our forecast for 2021 China GDP growth to 8.5% from previous 8.2% in anticipation of stronger pent-up demand as vaccination programs worldwide get underway. Also, the global reflation trade is a key negative driver for the USD.”

“Overall, we expect the CNY to strengthen further to 6.35 /USD by 3Q21, a level last seen in May 2018 before the onset of the US-China trade conflict. Lastly, a key risk to our positive outlook on CNY is a further deterioration of US-China relations under the incoming Biden administration.”