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After a 1% appreciation on the first trading day this year, CNY remained range-bound against USD in most time of January. Economists at MUFG Bank maintain an appreciation bias on CNY against USD, supported by continued China’s economic recovery.

Key quotes

“We maintain an appreciation bias of CNY against USD, with an expectation of a higher possibility of two-way fluctuation for Q1 and the rest of this year.” 

“Renminbi will continue to be supported by improving economic fundamentals and potential sizable FX settlements and sales surplus.” “Strong exports are likely to persist at least in the near-term and large trade surplus, as overseas major economies still face elevated pandemic and experience production shortages. Exports and industry production will continue to be the main driving forces for Chinese economic recovery.” 

“PBoC will certainly tighten its monetary policy at some point down the road, but not now or this quarter, as consumption is still weak, clusters of pandemics are happening in some areas of China, and still severe overseas’ pandemic situations post risks too.”