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USD/CNY FORECAST

So where would we be seeing USD/CNY over the next few months?

With continued watching on market fundamentals of the USD/CNY, we continue to see expanded use of the currency with the following:

• Russia: Russian companies are exploring into shifting trade contract to RMB denominated ones for future dealings in China,

• LME: With the current commodity financing problems, the possibility of using the London Metal Exchange as an intermediary for transparency may be explored, and as such, it may speed up their implementation of using RMB as a settlement currency,

• PPP  Purchasing Power Parity: China’s current PPP comparable to the US, is less than 5 times of the US.

With expansionary use of the currency in global trade and with the country’s continuing effort to build a stronger capitalist foundation, appreciation in the USD/CNY pair should be something gradual.

Now, understand that CFETS (China Foreign Exchange Trade System) announces the central parity rate for the major currencies against major currencies at 9.15am Singapore/Malaysia/Beijing time. It is important to note that the trading band on the spot market is within the 2% range; therefore, it will be good ranges to follow.

Let us look at some price charts.

fundamental analysis Greater China and the USD CNY Daily Chart

Chart 5: USD/CNY Daily Chart

Based on the Daily chart of the USD/CNY (chart 5), the market seems to have completed a full 5-wave to the upside. Theoretically, if we use the Elliott Wave from here, this ABC correction on Chart 5 should see a test on support at USD/CNY 6.1800. To complete the entire test downwards, we should see a pivotal point at 6.1500 for any longer term strength on the CNY.

In my opinion, a trading range between 6.1500 to 6.2500 for 2014 seems like a reasonable outlook, as China continue to repair credit, attract new investments from FDIs and re-focus its domestic growth model.

Samuel Tay

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