Connect with us

Hi, what are you looking for?

Forex

China’s Biggest Fears Are Giving Dollar All the Support It Needs By Bloomberg

Dollar Edges Higher; Asian Covid Cases Rise


© Reuters. China’s Biggest Fears Are Giving Dollar All the Support It Needs

(Bloomberg) — The U.S. dollar is getting a boost from an unusual place — China.

Increasing coronavirus infections, slower growth and rising risk of default in the world’s second-largest economy are combining to help fuel a stronger dollar, according to Morgan Stanley (NYSE:) strategists. But at the same time, these factors are combining to keep the yuan in a tight trading range, which caps how high the greenback can go.

“As a large component of the Fed’s broad USD index, and an influential global currency, a relatively stable CNY limits how far the broad USD index can rally,” strategists led by Matthew Hornbach wrote in a note to clients Friday. 

A sharp jump in the dollar-yuan cross would lift the broad , as the renminbi has a heavy weighting in it, and there would be a spillover effect from other developing-world currencies, they wrote.

The renminbi is the second-best performing emerging-market currency against the dollar this year, gaining 0.7%. While China’s domestic woes suggest the country risk is “relatively high,” the yuan is set to continue outperforming most peers in a strong-dollar environment, according to the Morgan Stanley strategists.

“China’s balance of payment positions remains extremely strong, and at the same time, the authorities may well prefer to keep the CNY relatively stable to anchor sentiment,” they wrote. “This is why China’s FX policy is actually preventing a more meaningful rally in the USD.” 

Though Morgan Stanley doesn’t expect a big move in the currency pair, if the yuan weakens sharply, it may represent the final stages of the greenback’s rally. Last week, Wells Fargo (NYSE:) warned the Chinese currency could fall as much as 2% in the coming weeks as traders weigh renewed regulatory and economic concerns. Meantime, strategists at JPMorgan Chase & Co. (NYSE:) expect to see a slightly weaker yuan toward year end on the back of a firmer U.S. dollar. 

Morgan Stanley trade recommendations: 

  • Likes the CNY as a carry trade; recommends long 10-year Chinese government bond position without FX hedge
  • Recommends long CHN/TWD as a carry trade and 3m NDF

©2021 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Click to comment

Leave a Reply

Your email address will not be published.

You May Also Like

Technology

Cybercriminals Adopt the Blockchain to Broadcast confidential Messages A group of analysts from SophosLabs represents that programmers working the crypto-jacking malware, Glupteba, have been...

Technology

PUBG unban in India soon as PUBG Corp. Will The Government Of India Unban PUBG? PUBG Mobile was Ban in India, PUBG organization has...

Technology

A standard method to execute Bitcoin could be powerless against double-spending, the new examination has found. Blockchain sleuths at ZenGo, a wallet startup, have...

BlockChain News

HDD mining, also known as “storage mining”, is a process of obtaining cryptocurrency based on hard disk memory. Compared with traditional POW mining, hard...