USD/CNY: Chinese yuan to enjoy further gains in 2022 – CIBC

Despite facing economic headwinds from lingering COVID-19 and related issues, the Chinese yuan has been the strongest major currency through 2021. PBoC pro-active monetary policy, demand for Chinese bonds, and benefits of a steady or stronger currency continue to support CNY outperformance, as reported by economists at CIBC Capital Markets.

Further CNY appreciation in 2022

“Overall asset demand has been bolstered by a reduction in perceived premium to invest in China. Presidents Xi and Biden having started dialogue through the recent virtual summit, calming perceptions of the nations heading toward conflict, and is reason for encouragement that the premium can be reduced. Even if that does not deny that tensions at some level will almost certainly be a feature for some time to come.”

“Chinese monetary policy has been kept ‘basically stable’, though has still been set to be economically supportive throughout the last year. We expect the same approach in 2022, with the mantra of ‘targeted support’ to be prominent. That will mean targeted lending instructions and a possible further RRR cut for banks to support small and medium sized businesses.”

“There is always a risk that the pace of currency gains will raise ire of authorities. But an ongoing strong trade performance, and a widening current account surplus support appreciation, and suggest on these factors, the relative hands-off approach to the currency can continue.”