Sean Callow, Research Analyst at Westpac, suggests that the Chinese yuan dominates market attention as its decline is not simply a case of dollar strength, as it usually is.
Key Quotes
“Indeed at time of writing, CNY is the softest Asian currency over the week. -1.8%, producing an eye-catching fall in CNY NEER.”
“It seems unlikely that the week ahead will see a similarly steep rise in USD/CNY, after the pair smashed through 6.60 to highs since Dec 2017. A further rapid decline in the yuan would cause unnecessary angst among Chinese investors, given that the PBoC’s immense firepower means calm can be restored at any time.”
“So USD/CNY price action should become more two-way in order to limit damage to investor confidence at a time that the Shanghai Composite is printing 2+ year lows. Yet if DXY extends its gains multi-week, USD/CNY will need to resume its rise in order to avoid the CNY NEER appreciation that is apparently not as desirable given pressure on China’s export prospects.”
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