USD/CNH: A weaker renminbi in service of the economy – TDS

Strategists at TD Securities go long on USD/CNH on a deterioration in US-China relations, as well as detected changes in the USD/CNY fixing beta.

Key quotes

“The proximity to recent political events suggests to us that Chinese policymakers will no longer subjugate renminbi policy to maintaining goodwill in US-China trade relations. We instead see policymakers prioritizing FX adjustment to the Covid-19 global trade shock and assistance in easing monetary conditions.” 

“We do not think that there will be an intentional outright politicization of the renminbi, which we would characterize by a substantial (10%-plus) idiosyncratic depreciation against the USD.”

“We go long 12mth USD/CNH forward in our model portfolio at 7.2477 (7.1490 spot reference). Spot take profit and stop-loss references are 7.5060 and 6.9700 respectively. Current indicative 12mth spot forward take profit and stop loss levels are 7.6100 and 7.0665 respectively.”