Devaluation Is Path Of Least Resistance For The USD/CNY
Callum Thomas | Jul 04, 2018 12:24AM ET
Today's chart actually comes from a video we released yesterday: "Renminbi Devaluation Risk in Focus". It shows the USDCNY exchange rate against the monetary policy interest rate differential for China (People's Bank of China) and the USA (US Federal Reserve).
The key point with this chart is that policy rate differentials point to a weakening CNY relative to USD. Indeed, as stimulus tailwinds have turned to headwinds in China, export growth has rolled over, and signs of a slowdown in the property market show up, it would be entirely reasonable to expect a weaker Chinese yuan simply on the back of the macroeconomic outlook.
Add to that the policy rate picture in today's chart, then throw in the whole trade war and geopolitical aspect and it seems clear that the path of least resistance for the USDCNY is up—possibly towards 7 or beyond. As China's economic influence grows it's important to be mindful of developments like this. Indeed, the move in the USDCNY in 2015 triggered a global stock market correction...and that begs the question of when will markets start reacting to the current move?
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.