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Falling China Liquidity Pricing In Higher USD


Executive Summary:

  • China liquidity continues to contract, therefore pausing a threat to both domestic and international asset prices
  • Aggressive tightening from EM central banks have led to sharp flattening in yield curves, increasing recession risks
  • Demand for 'safe' assets could remain high amid rising uncertainty

Link to full article:

China liquidity USD.pdf

A fall in Chinese liquidity has generally been associated with a rise in risk aversion with investors seeking for 'safe' assets such as US Treasuries or USD. Figure 2 shows how strongly China 'liquidity' has led EURUSD exchange rate by 6 months in recent years.

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