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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
CHINA
- Since the start of the pandemic, the Chinese Yuan has been constantly appreciating against the US Dollar, even though the policy rate in China has remained steady (China actually cut its RRR by 50bps in July to support its economic activity).
- The top chart shows that the policy rate differential (FFR vs. China RRR) has been a strong driver of USDCNY in the past cycle, and that the constant CNY appreciation has led to a significant divergence between the two times series in the past 18 months.
- However, central banks' balance sheet asset differential has been another important driver of currencies in the past 10 years.
- While the PBoC balance sheet has been nearly unchanged since the start of the pandemic, the Fed balance sheet more than double to 8.67tr USD and continues to gradually increase.
- With USD liquidity expected to continue to rise in the short term (Fed tapering expected to last until mid-2022), support for the Yuan could continue to remain strong (bottom chart).
- Key support to watch on the downside stands at 6.24; a break below that level would open the door for a move down to 6.04 (early 2014 lows).
Source: Bloomberg/MNI
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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