Sean Callow, Research Analyst at Westpac, points out that the yuan followed a clear appreciation trend from about Aug 2017 to as recently as mid-Jun 2018, where it reached a high since Feb 2016.
Key Quotes
“What happened in the middle of June?”
“The popular notion of early 2018 that the US dollar would not benefit from Fed tightening is not heard too often any more. While other major central banks are tentatively on a tightening track (BoE, BoC), there is no rival to the scale of the Fed’s tightening track.”
“Since 12 June, the eve of the FOMC decision, all G10 currencies are down against the dollar, other than haven JPY which is about flat. Asian currency losses in this time range from -1% for PHP which was very weak Jan-Feb) to -4% on KRW. It is very notable that CNY is second weakest, -3.2%, given that the yuan is normally one of the low beta Asian currencies and given the previous preference for appreciation.”
“Of course, the CNY breakout may be about more than a strong dollar. The US-China war of words over trade policy continues, ahead of the imposition of tariffs on $34bn of Chinese imports on 6 July.”
“We doubt China views a weaker yuan as a key policy tool in its trade battle with the US. But the recent yuan slide adds to the weight on AUD/USD as it prints lows since Jan 2017 – another period of market turmoil in China.”
Share
