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The yuan has outperformed in 2020 against both dollar and its major trading partners despite the escalation of US-China tension with CNY has gained more than 6% against the US dollar as of the end of November. Economists at OCBC Bank expect the Chinese yuan to remain supported in the next year.

Key quotes

“The strong RMB was mainly attributable to three factors including China’s first in first out recovery, the widening current account surplus and favorable yield differential between China and US. We expect those factors will continue to underpin CNY in 2021.” 

“Given China’s increasing focus on independence of monetary policy, it will gradually loosen its tight control on currency volatility. This means that China will have higher tolerance for the possible overshoot of CNY in the near-term.”

“For the USD/CNY, we think it may test 6.30 in 2021.”