USD/CNY pair likely to move higher throughout 2016

The USD/CNY, in the past month rose 0.7 percent to 6.56. This raises the possibility of additional higher moves throughout 2016. Even if the underlying Chinese economic data have indicated certain stabilization in underlying activity, the recent May trade data shows subdued external demand and increased capital outflows.

The PBoC’s key message in December was that it was seeking to keep a stable exchange rate against a trade-weighted basket of currencies, apart from against the USD, said Lloyds Bank in a research report.

If two interest rate rises from the US Fed exerts pressure on other Asian currencies to decline, the USD/CNY is then likely to move up modestly. However, volatility in the exchange rate in the beginning of 2016 and in August 2015 continues to obscure central bank’s intentions.

“The risks to our USD/CNY forecasts are skewed to the upside, even if exchange rate depreciation at the moment does not appear the most optimal form of stimulus for the Chinese economy,” added Lloyds Bank.