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Renewed US-China tensions and growth challenges are downside risks faced by the CNY versus the USD. On the other hand, the PBoC will likely keep calming the market and providing a cap on USD/CNY. Analysts at Nordea forecast the USD/CNY pair at 7.05 by the year-end.

Key quotes 

“As a result of the slower-than-expected recovery in private consumption and service sector activity, we revise down our GDP forecasts for this and next year to 1% and 8%.” 

“The pandemic is already making the trade deal fragile, as China will struggle to meet the ambitious import demand. A serious comeback of the trade frictions before the pandemic is under control and the economy is on a clear path of recovery could spark another CNY sell-off.” 

“Beijing has its hands full dealing with the economy and is probably not interested in the trade war returning. But its need to show strength domestically as well as globally implies that it will not cave if Trump steps up the pressure.” 

“While the cooling relationship with the US poses a large downside risk to the CNY versus the USD, the PBoC, acting like a line of defence for the CNY, is expected to put a cap on USD/CNY.”

“USD/CNY Spot 7.13 3M 7.15 Mid-2020 7.10 End-2020 7.05 End-2021 7”