Chinese Yuan to rally as US-China trade deal looks likely – Morgan Stanley

Analysts at Morgan Stanley express their thoughts on the Chinese currency in the coming months, in the wake of China’s widening current account deficit and US-China trade spat.

Key Quotes:

“In the near term, we think the PBoC will likely work to keep the RMB stable on a TWI basis via adjustments to the USDCNY fixing. A stronger RMB will act as an 'anti-USD' and will help bring about a secular decline in the DXY. 

However, over the course of 2019, we see a case for RMB underperformance relative to EM due to the widening of China's current account deficit and we suggest investors buy SGD/CNH to capitalize on this trend.

Options pricing from one-week USDCNY risk reversals suggests, on average, the market remains optimistic that a trade deal could be reached, resulting in a CNY rally.”