USD/CNY likely to reach 6.60 and then head for 6.50 if US and China reach a trade deal in April or May, says Scotiabank

The USD/CNY currency pair is expected to reach 6.60 and then head for 6.50 if the United States and China reach a trade deal in April or May and capital inflows could boost the yuan moderately in the months ahead, according to the latest research report from Scotiabank.

Risk sentiment has improved substantially in China’s onshore markets, largely due to rallying manufacturing activity and US-China trade talk optimism. China’s official manufacturing PMI rebounded strongly to 50.5 in March from a three-year low of 49.2 in February, marking the first expansion in four months.

A sub-index for the overall New Orders climbed to 51.6 from 50.6, indicating the nation’s economic recovery could gain more momentum the rest of the year. In the meanwhile, the 9th round of US-China trade talks kicked off in Washington on Wednesday.

According to Financial Times, "Top US and Chinese officials have resolved most of the issues standing in the way of a deal to end their long-running trade dispute but are still haggling over how to implement and enforce the agreement, people briefed on the talks have said."

Larry Kudlow, US President Donald Trump’s top economic adviser, told reporters on Wednesday that the US and China are making "good headway" in trade negotiations but unready to reach a deal. He hopes the talks will get closer this week. Myron Brilliant, executive vice-president for international affairs at the US Chamber of Commerce, said that negotiations had now entered the "endgame stage,” the report added.

More importantly, Hong Kong-based newspaper SCMP reported early Thursday that Larry Kudlow said at an event hosted by The Christian Science Monitor that "China acknowledged for the first time issues of intellectual property thefts, cyber hacking and forced technology transfer accused by the US but largely had been denied by China previously." He added "I think that that has led to, you know, good negotiations."

"We note foreign investors continue pouring funds into China’s equities, bonds and commercial real estate. Year-to-date, overseas investors have purchased a net USD 19.1bn and USD 9.0bn of Chinese equities and bonds respectively. We believe the index inclusion of China A-shares and government bonds will attract more portfolio inflows in the years ahead. In addition, foreign firms bought a record USD11.8 billion worth of Chinese real estate in the year of 2018 and are continuing the spree this year," Scotiabank further commented.