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The Chinese yuan is the top G10 currency performer this year, having risen around 6.5% against the USD YTD. Analysts at CIBC expect the yuan to extend gains with the USD/CNY pair reaching 6.50 in early 2021. 

Key quotes

“We assess prospects for further gains as strong, both against the USD and on trade-weighted measures. USD/CNY is poised to reach 6.5000 in early 2021. 

“The ongoing positive outlook is underscored by expected strong economic performance versus peers, and by China encouraging further foreign investment, while monetary authorities also continue to validate yuan appreciation through the daily fixings of USD/CNY.”

“In the end, periods of consolidation have been no more than fleeting, and the trend lower in USD/China which began in early June has simply extended. US-China trade tensions, and more broadly, US hawkishness toward China and its administration, have at times held back some gains. But in wake of the ‘phase one’ trade agreement, and as the US election to-date has not been fought specifically on trade, there is somewhat of a ‘steady-state’ and thus the impact has recently been muted.”

“Without US-China tension, there is a valid case that the Chinese yuan would be stronger still than gains that have already been driven by economic performance and asset demand. We recommend selling USD/CNY rallies and adding downside exposure through options.”