Danske Research discusses CNH outlook and flags a scope for further CNY depreciation vs USD
"A regime shift appears to have happened in CNH. The CNH continues to weaken against USD (and EUR). USD/CNH is now seeing the biggest weekly increase since 2015, when China changed its FX policy.. The move has been very fast but so far we see no signs momentum is abating. In the big picture, the currency is also fairly strong and the case for further weakening is strong," Danske notes.
"The fundamental forces still point to more CNY depreciation vs USD in our view as a) US and China monetary policy is on very diverging paths, b) China’s trade surplus is set to shrink as exports weaken this year and c) concerns over a longer crisis in China may fuel more outflows. The string of oubreaks hitting China’s biggest cities and without a change in China’s zero-covid policy in sight are fuelling fears that China could be heading for a long recession and an expected recovery in H2 will fail to materialize...A long position in USD vs Asian currencies, e.g. JPY, CNH, KRW, works as a way of expressing a bullish view on energy prices and higher US interest rates," Danske adds.