USD/CNY likely to fluctuate around 6.40 level, run tight correlation with the euro: Scotiabank

The USD/CNY currency pair is expected to fluctuate around the 6.40 level at the moment, continuing to run a relatively tight correlation with the euro. The former could continue outperforming a basket of currencies amid risk-off sentiment and benefit from the EUR’s potential strength to some extent, according to the latest report from Scotiabank.

With the U.S. dollar index sliding since end-May, there seems to be no upward bias in the People’s Bank of China’s (PBoC) daily USD/CNY fixing anymore. Thus, the CFETS RMB index has stabilized and rebounded somewhat last Wednesday.

At the upcoming June monetary policy meetings, the Fed is expected to reiterate its gradual policy tightening and the European Central Bank (ECB) will debate exiting the quantitative easing programme.

It could see EUR/USD heading for 1.20 afterwards, spurring concerns over global liquidity withdrawal and undermining EM Asian currencies. Meanwhile, risk aversion is likely to intensify in emerging markets as the 10-year US Treasury yield will test the 3.0 percent mark again despite subdued VIX index.

Meanwhile, Italy’s new finance minister Giovanni Tria told the Italian newspaper Corriere della Sera on Sunday that the new government was “clear and unanimous” in its desire to keep the country inside the Eurozone. His comments could alleviate some concerns over Rome’s economic policies and are supportive of the EUR, the report added.

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