Currencies: Limited signs of broad-based contagion from a weaker CNY - ING
|According to Viraj Patel, Foreign Exchange Strategist at ING, suggests that they find limited evidence of broad-based contagion from independent (non-USD-related) CNY moves in the current trade war episode – with the spillover effects varying across regions and specific currencies.
Key Quotes
“We also note that the spillover effects vary over time depending on the prevailing PBoC FX policy regime.”
“Regional disparities show that Asian FX suffered the most collateral damage from a weaker CNY as the US-China trade war has escalated, with the cross-correlations between other EM FX blocs (Latam and CEEMEA) and the yuan significantly lower.”
“We expect the removal of CNY weakness as a source of market risk to remove the depreciation bias in highly correlated currencies – and allow for both a relative relief rally and local factors to dictate currency movements.”
“While under benign conditions, Asian currencies would have probably seen a sharper relief rally under a more relatively stable CNY, the current market turmoil in EM FX – namely Turkey and Russia – is likely to counteract any broad move lower in USD/Asia FX.”
“We think a more stable CNY could allow for a relative outperformance of Asia FX versus CEEMEA FX – with the latter group of currencies playing catch-up to the more oversold Asian currency bloc.”
“More specifically, we also see some spillovers from the fragile risk environment (TRY collapsing, USD/CNY higher, EUR/USD below 1.1500) into the CEE FX – with HUF underperforming the CEE region.”
“With EMEA a source of geopolitical risk, we think it will be difficult for the ZAR to also stabilise – in effect the Rand's source of market risk has shifted from a weaker CNY to a weaker TRY and RUB.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.