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Yuan price forecast January 7 2021

2021-01-07

2021-01-07

Yuan doesn’t fear enemies. Forecast as of 07.01.2021Dmitri Demidenko

The yuan performed well in 2020, and it is going to rally in 2021. The USDCNH sellers still have the same advantages. Let us discuss the Forex outlook and make up a [USDCNH][1] trading plan.

Fundamental yuan forecast for six months

The yuan strengthened versus the US dollar by almost 6.7% in 2020. There are several reasons for the yuan’s rally, including the growth gap, different approaches to pandemic management, high demand for Chinese assets, and the hopes for the improvement in the US-China trade relations. In 2021, the renminbi’s last-year advantages should remain, so the [USDCNH][1] drop to the lowest levels since June 2018 is natural. The downtrend is strong. The matter is how deep the pair will fall.

In 2020, the US economy slid down into a recession while the Chinese GDP, according to the World Bank, has increased by 2%. In 2021, the World Bank expects the US GDP to expand by 3.5%, the Chinese one – by 7.9%. The growth gap will still support the yuan. This bullish driver will be especially strong in the first quarter, when the US economy will slow down to 1.9%, according to Wall Street Journal experts.

The renminbi versus the greenback has been growing for seven consecutive months, which is the longest winning streak since 2011. Besides, foreign investors increased their holdings of China’s stocks and bonds by 30%.

Dynamics of foreign investors’ holdings of China’s securities

Source : Bloomberg

The high demand for China’s assets is likely to remain in 2021, as the divergence in economic growth and monetary policies will continue, and the rates on China’s bonds will be more appealing than the Treasury yields. Donald Trump’s attempts to ban purchasing Chinese equities prove that his policy was vulnerable. Trump tried to act alone, so  China can bypass bans with the help of other countries. Joe Biden should stick to a different policy. He will try to prevent China from overtaking the US creating a circle of enemies around the largest Asian economy. The same plane once worked for the USSR.

Donald Trump managed to create an image of foe for China, which was greatly supported by the pandemic. The president-elect will hardly want to ruin this notorious image. The US will hardly ban the import tariffs on $370 billion of China’s imports soon. In the medium term, both sides are likely to continue negotiations and count on a meaningful dialogue. Anyway, I do not expect new trade wars, which is a positive factor for the renminbi.

[USDCNH][1] trading plan for six months

Of course, the Chinese government tries to suspend the yuan’s rally. Beijing allowed banks to issue more loans abroad. The government also resorts to currency interventions, as on January 5, a number of state- owned companies were seen to be selling the currency. Chinese officials say the yuan appreciation will slow. However, these steps should not discourage the [USDCNH][1] bears. The current market sentiment allows me to change the targets defined in November from 6.32 to 6.2 in the next six months. The trading recommendation is to sell [USDCNH][1].

Price chart of USDCNH in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=USDCNH&returnUrl=true