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  • In the past cycle, Long CNY / Short VIX has been a popular strategy used by some macro funds, which are recalibrating their leverage according to the macro environment.
  • Periods of strong 'risk-on' environment (i.e. falling volatility, or buy the dip in equities) have been associated with strong CNY gains and vice versa.
  • The chart below shows the performance of CNY for different magnitude of VIX moves, looking at daily data since January 2010:
    • The x axis looks at the magnitude of the VIX moves: between 0 and -5, between -5 and -10, etc.
    • The y axis looks at the CNY performance (in bps).
  • The more aggressive the fall in VIX, the stronger the CNY gains; on the other hand, volatility spikes have been associated with ‘strong’ CNY losses.
  • Hence, CNY could be 'qualified' as a 'risk-on' currency.
  • The sharp drop in price volatility has led to further strength in CNY (vs. USD) in the past day, with USDCNY breaking below strong support at 6.3570 (May 31 low).

Source: Bloomberg/MNI