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USD/CNY trading in a range (7.05-7.10) but could head modestly lower through H2 as a gradual economic recovery and a modest easing in monetary and fiscal policies will support the CNY, according to economists at ANZ Bank.

Key quotes

“Fears of a second wave of infection in China, heightened virus worries in the US, and bouts of US-China tensions have kept USD/CNY in a 7.05- 7.10 range for most of June. We expect USD/CNY to continue to fluctuate within a range, as concerns over the pandemic continue and US election-related rhetoric picks up in coming months.” 

“Amid volatility, we see a modest downside risk in USD/CNY through H2 2020. Principally, on the economic front, we expect a gradual recovery of the Chinese economy. Monetary and fiscal policies will remain supportive but measured. We continue to expect the PBoC to ease monetary policy modestly, with a further 20bp cut to 2.00% in the 7-day reverse repo rate and a 100bp cut in the reserve requirement ratio for large banks in H2. On the fiscal front, we do not expect deficit monetization in China.” 

“We expect the ‘unlimited’ quantitative easing of the US Federal Reserve, more so than in the aftermath of the GFC, to eventually take the USD down in the next two to three years. We expect USD/CNY to end this year at 7.00.”