USD/CNY rose in June due to unexpected US dollar strength. More risk factors, according to MUFG Bank economists, could limit the degree of China’s economic recovery in the second half of the year, meaning a volatile USD/CNY.
“We don’t expect continued depreciation pressure on the CNY versus the USD in the next months, and in fact, despite the current rise of the USD, we forecast a weaker USD for the rest of 2021.”
“In comparison to H1, we see more issues in H2 that could stifle economic growth. Exports were a major driver of China’s growth in the first half of the year. Because of the recovery in goods supply shortages and the possible shift in demand from goods to services in both the US and Europe, China’s export growth will be harmed. Also, isolated epidemics in some areas may limit the recovery of domestic demand and private investment, and these results may not be enough to compensate for the slowing of export growth. In the third and fourth quarters, we expect China’s growth to slow much more.”
“Given the possibility of a weaker US dollar in H2 and the uncertainties associated with the Chinese economy’s development, we expect USD/CNY to stay range bound with more volatility for the remainder of the year. We predict USD/CNY to rise to 6.6000 by the end of 2022H2, as we expect the USD to benefit from growing speculation on rate hikes in 2023, paired with less supporting fundamentals and a possible more balanced trade balance.”/n
