USD/CNY forecast as the renminbi crash eases

By:
on Sep 12, 2022
  • The USD/CNY exchange rate has been in a strong bullish trend.
  • It has risen by almost 10% this year as the yuan crashed.
  • The divergence between the Fed and PBOC has widened.

The USD/CNY exchange has been in a strong bullish trend this year, pushing the Chinese yuan and the renminbi to the lowest level since August 2020. The pair has jumped by almost 10% this year. This means that the renminbi is on track for its worst year since China removed its currency peg.

Renminbi crash gains steam

The USD/CNY price has been in a strong bullish trend in the past few months due to several factors. First, the pair has risen because of the divergence of the monetary policy from the United States and China. 

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In the US, the Federal Reserve has embraced a more hawkish tone in the past few months. It has hiked rates by 225 basis points and embarked on a plan to reduce the amount of USD in circulation through its quantitative tightening (QT) policy.

On the other hand, the People’s Bank of China (PBOC) has decided to move in the opposite direction. It has delivered several rate cuts in a bid to cushion an economy that is sputtering. China’s economy has struggled as the housing market has taken a hit following the collapse of many property companies.

At the same time, the government has been an outlier in its Covid-19 policy. It has decided to impose large-scale lockdowns in key cities.

Second, the USD/CNY forex price has crashed because of the US dollar strength. The dollar index has risen by more than 20% from the lowest level in 2021. The greenback has rallied as US consumer and producer inflation have risen to the highest level in more than four decades. 

The USD to CNY exchange rate has declined slightly in the past few days after the People’s Bank of China took steps to stem the crash of the currency. It bank set the midpoint for the renminbi trading at the lowest level in two years. 

The next key catalyst for the USDCNY price will be the upcoming US inflation data. Analysts expect the data to show that inflation eased slightly in August.

USD/CNY forecast

USD/CNY

The daily chart shows that the USD/CNY price has been in a strong bullish trend in the past few weeks. It rose to a high of 6.97 last week from a low of 6.9240. The pair has moved above the 25-day and 50-day moving averages.

The Awesome Oscillator has moved above the neutral level. It has also moved above the important support level at 6.8133, which was the highest point on May 13 this year. 

Therefore, the pair will likely keep rising as bulls target the next key resistance level to watch will be at 7.0. A drop below the support at 6.90 will invalidate the bearish view.

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