J.P.Morgan: A Delayed End To CNY Strength

Looking ahead to ’22, J.P.Morgan “expect the passive appreciation in CNY FX this year to carry over into H122 as the legacy COVID-related supports including upbeat inflows and flush USD buffers are unlikely to fade in the near term.”

• They “hold onto a bullish view in CFETS TWI positioned via CNH longs against KRW in cash and against EUR in options.”
• They expect “USD/CNY to stay around CNY6.35 throughout H122 alongside weakness in the majors and a higher DXY, which should create another 2-2.5% headroom for CNY TWI. While the precise timing is difficult to pin down, expect CNY strength to peak by around mid-year and forecast a mild upward drift in USD/CNY to CNY6.55 by YE22 assuming greater RoW normalization and the FX market’s front-running of China’s border re-opening as the country approaches herd immunity.”