Allan von Mehren, Chief Analyst at Danske Bank, expects the Chinese currency to grind lower in the next months. Key Quotes “USD/CNY has fallen significantly recently, which reflects declining Fed rate expectations and the PBoC’s increased focus on the trade-weighted RMB”. “Hence, we have lowered our 1M forecast to 6.60, from 6.65. Still, given the divergence in monetary policy and that CNY is more market based, we look for a further depreciation of the CNY against the USD of around 7% over the next 12 months”. “We expect market pressure to continue, although China has shown a stronger willingness to defend the currency by draining liquidity in the CNH market”. “We still do not expect a big devaluation of the trade weighted CNY, as this would be likely to backfire and escalate capital outflows”. For more information, read our latest forex news.