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The USD/CNY currency pair is expected to fluctuate within a range of 6.70-6.90 over the coming months, with the USD/CNH pair trading at a premium to the former, with the central bank’s efforts managing market expectations of the yuan exchange rate, according to the latest research report from Scotiabank.
Meanwhile, if there is a positive progress in the US-China trade dispute, it will improve risk sentiment across the markets. However, if the two countries fail to reach a trade deal finally in the future, the yuan will face escalating depreciation pressure as China may seek the help of a floating exchange rate to absorb external shocks.
US-China trade war is set to intensify as US President Trump on Friday threatened new tariffs on USD267 billion of Chinese goods in addition to the prepared duties on USD200 billion of US imports from China.
"In addition, the PBoC is expected to tighten offshore CNH liquidity conditions further to defend the yuan exchange rate if necessary, which could benefit the KRW, TWD and THB as well in the meantime. We also bear in mind that an excessively strong dollar (vs. its major rivals and the yuan) is not in the Trump administration’s interest," the report also commented.
