Chinese Renminbi Draws Sellers from BNP Paribas and RBC Capital Markets 

  • RMB decline seen as a trend change among major banks
  • Nascent rise in USD/CNH drawing buy recommendations 
  • RBC Capital Markets eyeing rise to 6.48 in months ahead 
  • BNP Paribas eyes 6.80, forecasts 6.60 for year-end 2022

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The Renminbi has begun to ease lower against the Dollar following a 22-month rally and this week’s price action has prompted RBC Capital Markets and BNP Paribas to advocate that clients of the two banks buy USD/CNH in anticipation of a further climb during the weeks and months ahead.

China’s currency had risen against the Dollar since June 2020 and strengthened in overall or trade-weighted terms since July 2021 but the country’s main exchange rate for the offshore market - USD/CNH - has risen sharply this week and above a key level after climbing tepidly through March. 

“The timing of the break is a little earlier than what we had anticipated. We had expected the move to require the Fed to deliver the much-expected May and June rate hikes and quantitative tightening. However, St. Louis Fed President Bullard talking about the probability of a 75bp rate hike at the May meeting has helped send USD rates another leg higher,” says Ju Wang, head of Greater China FX and rates strategy at BNP Paribas.

“We expect the market to take a weaker yuan in stride. Thanks to the macro prudential measures implemented by the PBoC and the State Administration of Foreign Exchange, the build-up in local FX leverage has been significantly smaller during the latest round of Fed quantitative easing,” Wang and colleagues said in a note to clients on Wednesday. 


Source: BNP Paribas. Click image for a closer inspection.


Wang and the BNP Paribas team forecast the USD/CNH exchange rate will end the 2022 year around 6.60 but told clients on Wednesday that it could have scope for it to surpass that level in the interim after rising above its 200-day moving-average to reach year-to-date highs this week.

They are joined by RBC Capital Markets’ chief technical strategist George Davis and analyst colleague Daria Parkhomenko rom who suggested their clients buy USD/CNH at 6.4146 and look for a move up to 6.48 in the months ahead.

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“The recent rejection of the 6.3000 area pointed to an erosion in bearish momentum as prices failed to return below the midpoint of the channel.  Furthermore, the subsequent rally has just pierced the descending channel top at 6.3939 today. The resulting bullish trend reversal points to a shift in sentiment,” the pair wrote in a research briefing on Wednesday. 

“We go long USD/CNH at current levels (6.4146) and look to add at 6.3700. Implement a take profit at 6.4800 and a stop loss at 6.3400,” they also said.


Source: RBC Capital Markets. Click image for a closer inspection.


The fall in the Renminbi comes amid a slowdown in the Chinese economy and at a point when monetary policymakers at the People’s Bank of China (PBoC) are thought to be concerned about the impact that interest rate cuts and other forms of stimulus could have on financial stability.

“The PBC will put stability in the first place and pursue progress while maintaining stability. It will continue to implement a sound monetary policy, refrain from a deluge of strong stimulus policies…” the bank said last Friday

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Economic concerns, this week’s decline in the Renminbi and the currency’s elevation in the wake of an almost two year rally are all a part of why analysts and market strategists are now looking for the USD/CNH rate to continue its climb in the months ahead. 

“China needs easier financial conditions to accommodate the de-leveraging in the property sector. Both FX and rates will play an important role in the loosening, in our view,” BNP Paribas’ Wang said on Wednesday. 


Above: USD/CNH shown at monthly intervals with annotations and Fibonacci retracements of 2020 decline indicating likely areas of technical resistance. Click image for closer inspection.