USDCNY reached a new high this morning at 6.4250 as Chinese authorities allowed further RMB depreciation, notes BNP Paribas.
“This trend is consistent with our expetctations that the pair will trend towards 6.60 during 2016 as the USD rebounds. Such expectations signal a continuation of the move higher in USD/Asia and should also lend support to a break higher on USDJPY.
This pair is unusually lagging behind the latest sharp rise in US 2 year yields (see chart).,” BNPP notes.
“The lag may be explained by risk-off characteristics with the USD gaining ground vs. EM and commodity exporter currencies but weakening vs. the low-yield funding currencies,” BNPP argues.
BNPP targets USD/JPY 126 by yearend and beyond 130 into 2016.