USD/CNY: Fundamental factors points to lift the pair above 7.15 – Nordea

FXStreet reports that the current level for USD/CNY at around 7 is not sustainable from a fundamental point of view as the worsening virus spread, slowing growth recovery in China and escalating geopolitical tensions point to higher USD/CNY, Nordea’s Amy Yuan Zhuang reports.

“USD/CNY reached the current level due to the stock market euphoria this week. Since Chinese stocks are not in a ‘healthy’ bull market, as deemed by a Chinese state media, it is hard to imagine that the rally can last.” 

“The pandemic is still worsening on a global scale and particularly in the US, which has a crucial impact on overall risk sentiment. Other countries have also registered more infections, which have led to regional lockdowns in several countries.”

“The post-lockdown recovery in China is showing signs of leveling off. The sharp rebound so far was due to pent-up demand and government stimulus. Production of high-tech goods and infrastructure-related products have led the rebound but slowed in May. The Q2 GDP, expected on Thursday, will likely remind the market that Chinese economic activity remains far below the normal levels.”

“The long dollar-renminbi trade is further supported by the rising geopolitical risks surrounding China. We have always expected to see a fair share of China bashing ahead of the US election in November. But the Sino-US relations have cooled so much lately that Washington will likely not give Beijing any leeway on the import commitments entailed in the phase one trade deal. An official collapse of the trade deal would push USD/CNY far higher than 7.15, which the pair reached during the peak of the trade war.”