The renminbi (CNY) has hit its highest level in six years on a trade-weighted basis and firmest versus USD since May 2018. In the view of economists at TD Securities, the CNY is likely to soften into H2 2022. In the meantime, they are constructive on CNY and CNH and expect further strength vs. the trade-weighted basket.

Underlying support for the CNY is likely to wane

“CNY is supported by China's burgeoning current account surplus and strong inflows. Risk/reward is skewed towards more CNY upside in the next few months. As such, we are constructive on CNY and CNH and expect further strength vs. the basket over H1 2022.”

“Further out, underlying support for the CNY is likely to wane. Exports are likely to soften, and relatively higher US rates will reduce inflows to China. We think these factors will likely to lead to greater pressure on the CNY into H2 2022 and forecast USD/CNY to reach 6.55 by end-2022.”