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WEEK AHEAD: SEPTEMBER 21

Short Description

The Chinese yuan just had its best month against the US dollar (USD/CNH) since records began in 1981. I discuss whether there is more strength to come – and also rundown the economic calendar for this week. Thanks! Rich

Video Script

USD/CNH: Chinese yuan to strengthen further? - THE WEEK AHEAD (Sep 21-25, 2020)

Hi everyone, I’m back after a one week break, well rested and ready to preview another week ahead in markets! We’ve had some positive forecasts for the Chinese yuan from Goldman Sachs so I want give my take too, while also running down the week’s economic calendar that includes two interest rate decisions in New Zealand and Switzerland. 

Before I get started with the serious stuff, I want to tell you something that truly shocked me as an Englishman! My friend told me China invented football! That’s soccer for our American friends. Every Englishman is taught football was invented in England and formalised in 1863. BUT it turns out China invented the first version of football over two thousand years ago in a game called Cuju, which translates as “kicking ball”.

If you were as stunned as I was by this football fact– please click the like button – it really helps us spread the word about these videos!

Moving swiftly on, I’ve highlighted some consumer and business surveys from the UK and Germany at the start of the week as the most up-to-date indications of sentiment. As the US housing market booms, we have existing home sales data on Tuesday. The RBNZ rate decision is Wednesday then we have a series of preliminary PMI data – the first set for September. The Swiss National Bank Decision is Thursday with US Durable goods orders on Friday.

The Chinese yuan just had its biggest quarterly gain since records began in 1981, rising 4.3% since June against the US dollar. This coincided with a very weak quarter for the dollar. Looking back at the data from China released in the last fortnight, including an annual rise in retail sales and a big trade surplus- we can get a bit of a sense why traders are flocking to its currency. The Chinese economy stands out well in front of the rest as one of the few economies expecting to see economic growth this year.

The main logic for the rising currency has been China’s economic outperformance and what that means for the difference in interest rates. The rebound in China’s economy from the shock of the pandemic implies the People’s Bank of China will need to do less than other central banks – including the Fed and ECB.

Goldman Sachs has put out a forecast for the USD/CNY – that’s the onshore exchange rate for the yuan against the dollar -to reach 6.7 from around 7.0 now. USD/CNH – the offshore rate - has already touched a 0.67 handle.

So what are the biggest risks to this forecast? Goldman Sachs has cited two things that I tend to agree with. The first is the US China political tensions. The key thing here is whether the phase one trade deal is affected. So far it hasn’t been. We have seen the removing of diplomats and the latest saga with Chinese firms like Huawei and TikTok-owner ByteDance but nothing economic. In fact, China is sticking with its commitment on US farm goods purchases.

The second thing is the US dollar’s status as a haven. If it turns out the globe hasn’t got the virus under control with treatments, social distancing and a vaccine – then investors could turn back to a need for havens. One way to get past the dollar-effect is to trade the yuan against other currencies like EUR/CNH – that’s the euro against the offshore yuan.

Right thanks everyone, good luck trading and make sure to subscribe to our channel so you don’t miss the next video.
 

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