USD to CNY Breaks Out to New Highs: Case for Further Upside


USD to CNY Breaks Out to New Highs: Case for Further Upside

USD/CNY, the exchange rate between the US Dollar and the Chinese Yuan, has surged to new highs. That is a clear indication of a potential for further upside, as stated by economists at Credit Suisse. This development comes as the USD gains strength and China’s recovery from COVID-19-related lockdowns falls short of expectations. The breakout above key resistance levels has led to an increase in short- and medium-term momentum indicators. Therefore, the aspect creates a strong case for further upward movement. The next significant resistance level is projected to be at 7.0843, followed by the 78.6% retracement level of 2022/23 fall at 7.1982.

Credit Suisse’s economists highlight the correlation between the USD’s strength and the underwhelming Chinese recovery from COVID-19 lockdowns as factors supporting the potential for further upside in USD/CNY. As the USD turns stronger, including its impact on the exchange rate of 100 EUR to USD, it adds pressure to the Chinese Yuan, creating favorable conditions for USD/CNY to appreciate. However, the Chinese economy’s response to the ongoing challenges remains a crucial factor that could influence the exchange rate.

Differing Outlooks: Credit Suisse vs. MUFG Bank on USD/CNY

While Credit Suisse remains optimistic about the potential for USD/CNY, economists at MUFG Bank offer a different perspective. They anticipate the pair to move lower in the near future, despite recent upward momentum. The forecast is based on the expectation of steadier and faster growth for China’s economy in the second half of the year. Logically, it should positively impact market sentiment and lead to a strengthening of the Chinese Yuan. MUFG Bank forecasts that the USD/CNY pair will retreat to 6.8500 by the conclusion of Q2 2023 and continue its downward trend to reach 6.6500 by the end of the year.

The central parity rate of the Chinese Yuan against the US Dollar weakened to 7.0560 on Wednesday, according to the China Foreign Exchange Trade System. The yuan is allowed to fluctuate by 2 percent each trading day based on the central parity rate. The central parity rate is determined by a weighted average of prices offered by market makers before the opening of the interbank market each business day.

Key Support Levels and Impact on The Momentum

Market participants will closely monitor the key support level at 6.9639/9560, which ideally should hold to maintain the current upward momentum in USD/CNY. A breach of this support level could indicate a shift in sentiment and potential downward pressure on the pair.

In light of recent developments, experts have revised several currency forecasts. The 3, 6, and 12-month USD/CNY exchange rate forecasts have readjusted to 7.10, 7.00, and 6.80, respectively. It is a major upgrade in comparison to the previous estimates of 6.80, 6.70, and 6.50. These revisions reflect the evolving market conditions and the outlook for the USD/CNY exchange rate, as well as the Euro forecast, in the coming months.

Currently, economists have differing opinions on the long-term outlook for USD/CNY. However, the current breakout to new highs suggests a potential for further upside. Traders and investors will closely monitor the next resistance levels. Some major economic factors could impact the exchange rate between the US Dollar and the Chinese Yuan. The evolving dynamics between the two economies will play a crucial role in shaping the future trajectory of USD to CNY.

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