Bank of America has adjusted its forecasts for the USD/CNY exchange rate, lowering its end-Q3 and end-Q4 targets to 6.7 from a prior 6.8. The revision reflects recent appreciation momentum in the Chinese yuan that the bank attributes to strong export flows and clearer, firmer policy signals.
In its analysis, the bank sets out four principal themes that it believes will guide foreign exchange movements over both short and long horizons. A prominent near-term theme is the yuan's strengthening - a dynamic that the bank says is producing spillover effects, helping to lift a range of emerging market currencies more broadly.
Bank of America also draws attention to trade shifts involving China and Europe. Analysts note that Chinese export diversion into Europe is contributing to deeper trade deficits in the euro area, and they observe that the EUR/CNY exchange rate has climbed to a decade high. Given these conditions, the bank judges that risks are skewed toward downside for EUR/CNY in the near term.
Looking further ahead, the bank examines scenarios in which continued yuan appreciation could serve as a strategic instrument in closing the GDP gap between the United States and China. In this context, analysts are probing how much of such a scenario may already be reflected in CNH forwards markets.
Bank of America's research into the evolution of China's CFETS trade-weights surfaces a pattern of four distinct currency groupings. These blocks are described as: emerging markets together with the Canadian dollar; a set of non-USD alternative currencies; a USD-dominated block that includes gold and the Swiss franc; and a shrinking USD-aligned group composed of the Singapore dollar, British pound, Japanese yen, and Korean won. The delineation of these blocks underlines shifting alignment in trade-weighted currency exposures.
The bank's revisions and thematic framework underscore how developments in China's external sector and policy stance are reverberating through currency markets, with implications for FX traders, emerging market assets, and trade balances in Europe.