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    USDCNY likely to continue heading higher – SocGen Sandeep Kanihama

    Research Team at Societe Generale, suggests that their central scenario of USD-CNY reaching 6.80 remains unchanged since August of last year.Key Quotes“We assign an 80% probability to this outcome and a 20% probability to the risk scenario of 7.50.We continue to target USD-CNY peaking at 6.80 over the next 6-12 months. Capital outflows continue to exceed the current account surplus, which requires ongoing depletion of FX reserves. Capital outflows and intervention slowed quite dramatically in March/April compared to prior months, but appear to have picked up recently.The PBoC has ample, but not unlimited, reserves to defend the currency, and ultimately we believe that they will succumb to market forces and allow the CNY to depreciate further in a gradual and controlled manner. The USD-CNY rate remains correlated to the broad movements in the USD, so additional dollar strength (our G10 FX team expects DXY to rise by 5%) will exert additional downward pressure on the renminbi. Given the PBoC’s preference for a stable-to-weaker trade weighted exchange rate, if the dollar begins to weaken there will be limited gains in the RMB.”


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