USD/CNY likely to stay below 7.0 level in run-up to G-20 Osaka Summit set for June 28-29, says Scotiabank

The USD/CNY currency pair is expected to stay below the 7.0 level in the run-up to the G-20 Osaka Summit set for June 28-29, with sliding CFETS RMB Index, according to the latest research report from Scotiabank.

It will further undermine the yuan ] if there is no progress made in the US-China trade talks at the G20 Summit next month, and vice versa.

The yuan is facing increasing downward pressure amid escalating USChina trade tensions, as indicated by a widening spread between USD/CNY and USD/CNH. Chinese companies sold a net USD14.34 billion of FX forwards in April, down from a net USD18.25 billion worth of FX forward sales the previous month.

Meanwhile, China has reiterated that it will keep the yuan exchange rate basically stable at a reasonable and balanced level, with the central bank stepping up efforts to stabilize the yuan exchange rate and curb one-way speculation on the yuan depreciation, the report added.

In addition, the PBoC has kept USD/CNY fixing below 6.90 recently, setting the daily reference rate much lower than the median prediction in the Bloomberg survey on Monday and Tuesday. The PBoC also announced Tuesday that it plans to issue central bank bills again in Hong Kong in the near term.

Last Wednesday, the central bank sold CNY10 billion each of 3-month and 1-year bills in Hong Kong, the third issuance in about half a year.

"In our opinion, the issuance will be able to tighten offshore yuan liquidity conditions, with the aim of bolstering the CNH and then propping up the CNY," Scotiabank added in its comments.