Asia FX Talking: More two-way risk emerging in USD/CNY
Lead — The USD/CNY currency pair is experiencing increased two-way risk as higher U.S. Treasury yields and a stronger dollar create volatility in the market. Per the full note from ING, a key support level is expected to be around 6.67, indicating that investors may need to reassess their positions. Meanwhile, the South Korean won is benefitting from robust export performance, unlike other South Asian currencies that are facing high energy costs. This divergence hints at more complex dynamics across Asian FX markets as traders recalibrate expectations.
What the desk is arguing
The desk posits that the USD/CNY rate is increasingly susceptible to fluctuations due to rising Treasury yields and a shifting dollar landscape. Per the full note from ING, this potential for volatility further complicates the current trading environment, particularly with theoretical support at 6.67 for USD/CNY.
The significant uptick in U.S. Treasury yields offers a basis for the strengthening dollar, which has historically impacted the CNY's valuation. This presents a scenario where traders might need to strategize around potential fluctuations around the expected support level, rather than adhering to a single directional bias.
Where it sits in our coverage
While we currently do not have specific internal consensus targets for USD/CNY, a range analysis indicates that traders should be cautious of further downside before establishing firm positions as the market may oscillate between 6.67 and higher resistance levels. In our analysis of other pairs, we note that jpmorgan holds a target of 1.10 for a parallel USD trajectory through March 2026, while bofa anticipates a contrasting target of 1.04, which highlights the divergent views of FX stability moving forward.
How other firms see it
Amidst this backdrop, firms like jpmorgan and others might see potential upside in certain Asian currencies buoyed by export growth, while bofa suggests caution given energy price volatility constraining South Asian FX. This underscores the regional differences impacting currency valuations.
Potential links to watch include the fluctuation of the Korean won, which may offer insights into broader Asian FX trends, and the impact of U.S. monetary policy changes affecting the USD/CNY pair dynamics directly.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01USD/CNY is entering a more volatile phase with increased two-way risk driven by stronger dollar dynamics.
- 02Key support for USD/CNY is anticipated at 6.67, reflecting a potential lower limit for the currency pair this year.
- 03The South Korean won's strength contrasts with the struggles of South Asian currencies, indicating differing economic conditions.
- 04Traders should remain vigilant for any shifts in U.S. Treasury yields, which could further impact the CNY valuation.
Market implications
Traders should monitor the 6.67 level closely as it may serve as a pivotal support point for USD/CNY. Increased volatility could emerge with further U.S. economic indicators or shifts in monetary policy, necessitating careful position management leading into upcoming sessions.
Risks to this view
An unexpected shift in U.S. monetary policy or a sharp decline in Treasury yields could invalidate the current call, prompting a reevaluation of support levels for USD/CNY. Additionally, geopolitical developments in Asia might also force traders to reconsider their strategies.
Articles Asia FX Talking: More two-way risk emerging in USD/CNY Published 11:43 FX Talking Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Higher Treasury yields and a broadly stronger dollar are starting to inject more two-way risk in USD/CNY, raising questions about whether it needs to drop much further. We suspect 6.67 will mark the lower end of this year's range. Korea's won remains well bid on the broadening export boom, while South Asia FX continues to struggle with high energy Deepali Bhargava , Lynn Song and Chris Turner USD/CNY could soon be entering more of a two-way environment FX Talking Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Deepali Bhargava Regional Head of Research, Asia-Pacific Deepali Bhargava joined ING in 2024 and is Head of Research and Chief Economist Asia-Pacific. She has over 19 years of work experience as a macro specialist covering rates, FX and equity markets… Lynn Song Chief Economist, Greater China Lynn Song joined ING in January 2024 as the Chief Economist for Greater China.
Prior to joining ING, he worked at China Construction Bank International, China Merchants Securities (HK), and Haitong… Chris Turner Global Head of Markets and Regional Head of Research for UK & CEE Chris is Global Head of Markets and Regional Head of Research for UK & CEE. Together with his team, he provides short and medium-term FX recommendations for ING's corporate and…
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