CBA have noted that “CNH recently tanked as economically damaging lockdowns in major Chinese cities drove foreign capital out of China. USD/CNH surged more than 7% from mid‑April levels at one point. Despite the outsized rally, USD/CNH spot is currently close to our estimated fair value. Based on quarter‑to‑date values for the USD index, China’s current account balance and China’s two-year government bond yield, we estimate USD/CNH fair value is centred on CNH6.76. USD/CNH fair value has been increasing since March 2021 largely because of a higher USD. As COVID restrictions in China are slowly unwound, we expect market expectations for the Chinese economy (and by extension the world economy) to improve. This may take some pressure off the USD, in turn pulling lower both USD/CNH fair value and spot.”
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