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Goldman Sachs On Asia FX, USD/CNY Matters More Than USD/JPY

ASIA FX

The US bank notes that Asian FX has a stronger correlation with USD/CNY moves compared to USD/JPY, see below for more details.


Goldman Sachs: "USD/CNY matters more than USD/JPY. USD/CNY and USD/JPY moves have been in focus for the other Asian currencies in recent months with the USD/CNY fixing breaking above the key 7.10 level in mid-April and a potential intervention pushing USD/JPY lower last week. In order to determine which pair is more important for Asian FX, in our recent deep-dive, we calculated rolling correlations for an equally weighted Asian FX basket to moves in USD/CNY and USD/JPY. We observe that the correlation of Asian FX has been higher to USD/CNY than USD/JPY since 2016, and the gap was widening until 2022. This is intuitive because the share of China’s trade with regional economies has been growing (vis-à-vis Japan’s), thus Asian currencies (as a block) move more in sync with CNY, than with JPY. For instance, during the US-China trade war period, both USD/CNY and USD/Asia moved higher in response to the implementation of US tariffs on Chinese exports. However, JPY exhibited its safe haven properties through this period which meant USD/JPY did not move in the same direction as other Asian currencies. To drill further by currency, we observe that every Asian FX pair is more sensitive to USD/CNY than USD/JPY. Notably, the top four most sensitive Asian currencies to USD/CNY are: KRW, MYR, IDR and TWD. Meanwhile, the top four most sensitive currencies to USD/JPY are: KRW, THB, MYR and SGD. The least sensitive Asian currencies to both USD/CNY and USD/JPY are INR and PHP."

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