USD/CNY: Coronavirus to drive the pair – Nordea

The CNY will remain volatile as investors are digesting the impact of the virus outbreak and authorities are taking sharp measures to contain the virus and support economic growth, economists at Nordea inform. 

Key quotes

“The short-term direction of the currency strongly depends on the further unfolding of the virus outbreak and the measures the government takes to soften the blow. In case containment fails and panic spreads again, USD/CNY could weaken well beyond seven, towards ~7.15, levels last seen at the height of trade war escalation last year.”

“The daily fixing rate has been kept on the strong side of seven to the dollar in the past few days, suggesting that the PBoC stands ready to support the currency. Despite the calming efforts, the onshore yuan temporarily broke through the seven-to-the-USD mark on 3 February, and again on 18 February, following its offshore counterpart.”

“We take a wait-and-see-approach to the virus outbreak and maintain our forecast. The weakening from the second half of 2020 is based on our expectation of frictions between the US and China flaring up again.”