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MNI MARKET ANALYSIS: Fundamentals Pricing In ‘Cheaper’ CNY

Executive Summary:

  • The last few days have seen significant moves in the CNY, with USDCNY breaking above the key topside 200DMA and finding resistance at the 6.45 level.
  • While CNY had first benefited from ‘safe-haven flows’ following the Ukraine invasion, fundamentals are currently showing that the risk reward remains biased towards CNY weakness in the medium term.

Link to full publication:

MNI MARKETS ANALYSIS - CNY.pdf

As the China 10Y bond premium (over US 10Y) has now completely ‘vanished’ (following the sharp increase in US LT bond yields), interest from CNY carry traders has fallen, therefore also pressuring CNY to the downside in the medium term. The chart below shows that the 10Y interest rate differential (between US and China) has smoothly led the exchange rate by 12 months.

Source: Bloomberg/MNI

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