CNH 1Q Forecast: Vaccines and Biden’s Presidency May Threaten Yuan’s “One Way” Trajectory
The offshore Chinese Yuan has strengthened over 7% against the Greenback over the past 12 months, marking it the best-performing Asian currency in 2020. The seemingly “one way” trajectory of USD/CNH was primarily driven by a Dollar weakness as well as the rapid recovery of the Chinese economy from the Covid-19 pandemic. China registered a real GDP growth rate of 4.9% in Q3, outshining global peers.
Emerging market currencies were buoyed by capital inflows this year, as major central banks made a swift shift back to ultra-low interest rates and decisively unleashed liquidity to contain credit risks. A relatively better-handled pandemic situation in the Asia-Pacific region stands in contrast to a second major viral wave that swept most parts of the US and Europe, making a long-Yuan trade appealing for most currency traders.
This narrative may change as the calendar turns to 2021, with the rollout of coronavirus vaccines potentially expediting a recovery in western economies and reining in further monetary stimulus. A potential rebound in the US Dollar as a result of stronger fundamentals and inflation overshoot may lead to a reversal of EM currencies’ bullish trend.
More importantly, a possible reigniting of US-China tensions under Biden’s presidency may threaten the Yuan’s rally, particularly surrounding disputes over technology firms, intellectual property, geopolitical frictions and trade. The Yuan suffered a few rounds of rapid depreciation when President Donald Trump slapped trade tariffs on Chinese imports starting in mid-2018. The currency pair was viewed as a sentiment barometer for the US-China relationship, and will likely continue to play this role into year 2021.
USD/CNH Weekly Chart
![USD/CNH Weekly Chart, US-China Trade War, COVID-19 Pandemic](https://a.c-dn.net/b/4CFc50/CNH-1Q-Forecast-Vaccines-and-Bidens-Presidency-May-Threaten-Yuans-One-Way-Trajectory_body_Picture_24.png)
Chart prepared by Margaret Yang, created with IG
![](https://a.c-dn.net/b/0YPMDo/logo-stripe.png)
![Top Trading Opportunities in this Quarter](https://a.c-dn.net/b/0WEWFC/500x707Forecast-TopTradingOpportunities.png)
![Top Trading Opportunities in this Quarter](https://a.c-dn.net/b/0WEWFC/500x707Forecast-TopTradingOpportunities.png)