Goldman: Peace Dividend

Goldman Sachs noted that “the USD downdraft post the low US CPI print and less rate pressure further extended on a series of stronger CNY fixes. This is further evidence of the policy preference for reducing depreciation expectations and outflow pressures.”

• “Currency strength has also been bolstered by a constructive summit meeting between Presidents Biden and Xi, which attempted to put some guardrails on the relationship in order to limit geopolitical tail risks, as well as media reports of additional policy support in the property market.”
• “But a more sustained appreciation in the currency would require a more convincing pickup in Chinese growth and improved prospects of asset market outperformance, which still seems harder to envisage.”
• “October activity data was mixed. House price data suggest the weighted average property price in the primary market fell in October, and the headline CPI inflation also fell to negative territory again in October.”
• “So even as policy-driven daily fixes may attempt to direct the currency somewhat stronger from here, and shake-out any accumulated short positioning, there will eventually be limits given our view of strong activity growth in the US in contrast to a more tepid profile in China, and a continued interest rate differential.”