FxWirePro: USD/CNY might push above 7 in H2

The year 2017 has so far been rewarding for the Chinese yuan, which had its worst year in 2016 since the exchange rate was liberalized in 2005. Last year, the yuan was down more than 6 percent against the dollar but this year the currency is up more than 1.1 percent so far. We forecasted that the first half would turn out to be better than expected for the yuan and might go as high as 6.75 per dollar. While it has not yet the reached the forecasted price it has strengthened to as high as 6.778 per dollar.

Though we at FxWirePro have been every positive on the yuan in H1, we are not so optimistic on the currency of the world’s second largest economy in H2. In the second half of this year, we expect the tax reforms proposed by the US President Donald Trump will pass through congress and it is unlikely to be pretty for China. The outflows are likely to increase in the second half of this year from the second largest economy as the interest rate differential between the USD and CNY declines further.

We expect the speculators to push to break the 7 mark in H2 and if it gets cleared the Chinese currency could eventually weaken to as low as 7.6 per dollar.