USD/CNY likely to head for 6.60 on hopes U.S.-China trade deal amid concerns over ongoing negotiations, says Scotiabank

The USD/CNY currency pair is expected to head for 6.60 on hopes for the US and China reaching a trade deal, although the pair is now trading above 6.70 amid some concern over ongoing trade negotiations, according to the latest research report from Scotiabank.

China’s economic recovery is expected to gradually gain momentum in the months ahead, despite recent disappointing macro data, the report added. Ni Yuefeng, head of China’s Customs, said on Saturday that the growth in China's foreign trade of goods rebounded strongly after the weeklong Chinese New Year holiday.

In the first eight days of March, the country's external trade soared 24.7 percent y/y with exports rising 39.9 percent y/y, according to Ni. He added "we are very confident about China's foreign trade growth in the future."

China’s February PPI inflation stayed flat from a month ago, suggesting US inflation outlook will remain fairly benign. Fed Chairman Jerome Powell said in a wide-ranging speech at Stanford University on Friday that inflation in the US is low, stable and doesn't react much to slack in the economy.

On Sunday evening local time, Powell spoke in an interview on the CBS program "60 Minutes" that patience means the Fed is in no hurry to change rates. China’s credit supply growth slowed in February, along with decelerated expansion of its money supply.

However, combined January-February new yuan loans and total social financing (TSF) showed a rise of CNY374.8 billion and CNY1.05 trillion from a year earlier respectively. In addition, China’s central bank on Sunday pledged to further support the slowing economy by spurring loans and lowering borrowing costs.

PBoC Governor Yi Gang told reporters at a press conference during the annual National People’s Congress in Beijing on Sunday that there is still room for further RRR cuts, albeit not as much as in previous years, the report further noted.

Meanwhile, Governor Yi also reiterated the nation will keep the yuan’s exchange rate basically stable at a reasonable and equilibrium level.

"We expect the yuan to be allowed to rally as long as the dollar weakens broadly but not to fall markedly to gain a competitive advantage even if the dollar strengthens substantially. Meanwhile, CFETS RMB Index is likely to rise further to the levels seen last June to honour China’s commitment that it will never use its currency as a weapon in the trade war," Scotiabank added in its comments.