In a recent market move, USD/CNY broke below the crucial 7.2 level and surged towards the 7.1 mark, causing a stir in the financial world. The carry unwind and volatility surge played a significant role in this shift, catching onshore firms and exporters off guard. TDS FX and macro strategist, Alex Loo, believes that this move could potentially sustain the CNY rally in the short term.
Analysis and Forecast
According to Loo, exporters have likely accumulated a substantial long USD position, leading to a delay in converting their USD proceeds due to low conversion ratios and settlement balance trends. Despite this, Loo predicts a floor for USDCNY at 7.1, with the possibility of the PBoC adjusting its stance to allow the CNY to weaken further.
While a shift towards Asia’s low yielders is conceivable following the carry blowup, it is unlikely that investors will heavily invest in CNY longs. Loo’s analysis of composite data trends, surprises, and consensus revisions indicates that China is still behind the US, suggesting a bearish outlook for the CNY. Consequently, Loo maintains a long USD conviction and anticipates a potential move towards 7.40 for USD/CNY by the end of the year.
Overall, the recent developments in the USD/CNY market signal potential opportunities and risks for investors. Understanding the factors driving the CNY rally and the projected movement towards 7.40 by year-end can help individuals make informed decisions regarding their investments and financial strategies. Stay informed and monitor market trends to navigate these changes effectively.