USD/CNY eyes levels last seen in December 2007 – MUFG

Signs of opposition to CNY weakness have helped stall Dollar gains. Still, economists at MUFG Bank expect the USD/CNY pair to advance nicely.

Signs of resistance to a higher USD/CNY unlikely to lead to a turnaround

We doubt very much that the signs of resistance to a higher USD/CNY will lead to a turnaround in USD/CNY. This strategy is very likely more about curtailing sharp moves and fuelling further appetite for Dollars and for capital flight. 

The divergence between the PBoC fixing and market estimates of the fix is now at the widest ever, surpassing the previous record from November 2022. Back then falling US inflation and falling US yields alleviated the upward pressure. That seems much less likely at this stage and a break higher through the intra-day high from last November of 7.3274 seems very likely, taking USD/CNY to levels last seen in December 2007.