Macquarie: Yuan going higher

Macquarie is out with its latest thoughts on Yuan, suggesting it might hit 6.4 against USD soon:

Last September, we had forecast that the RMB would hit 6.4 against the US$ at the end of 2017 (How to think about the RMB). And this January, we foresaw that the RMB would be the biggest surprise this year (2017 outlook: What could surprise). As the RMB has strengthened against the US$ this year, we have received many enquiries about our updated views on the RMB. In this note, we use the same framework from our previous notes (left chart 1) to discuss the outlook for the RMB in both the short- and long-term.

In the short term, the Yuan might hit 6.4 against the US$ but the uncertainty is high. By the end of this year, most likely the USD/CNY would range-bound between 6.5 and 6.9, in our view. The uncertainty mainly comes from central banks, especially from the Fed and the PBoC. For the Fed, the question is how the US$ is impacted by its exit from easing policies. For the PBoC, the question is whether it would allow the Yuan to rise without intervention, or start buying the dollar again to curb the strength of the Yuan (If it does, its FX position would rise after the decline since early 2014, left chart 2).