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Allan von Mehren, Chief Analyst at Danske Bank, expects the Chinese Yuan to gather some traction to the 6.25 area in 12-month view.

Key Quotes

“We look for Chinese money market rates to ease further in 2018 following a big rise in 2017 as liquidity was tightened. M1 growth has fallen quite sharply due to the monetary policy and we expect the PBoC to take its foot a bit more off the brake. The PBoC has cut the Reserve Requirement Ratio to free up some liquidity recently. As US money market rates are set to rise, relative rates will move in favour of the USD”.

“We expect the high correlation with EUR/USD to continue. As we have revised lower our 12M EUR/USD forecast to 1.25 (from 1.28), we also make a slight adjustment to the USD/CNY forecast. We now look for 6.25 in 12M (from 6.20)”.

“This implies a downward adjustment to our EUR/CNY forecast as we now look for 7.81 in 12M (from 7.94), which is lower than the forward market of 7.93″.