Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Bond Market Panic Continues Towards May Expected Japanese Rate Hike Volatility Spike - 24th April 25
Stock Market Tarrified as President Dump Risks Turning Recession into Stagflationary Depression - 21st April 25
President Dump Delivers BEAR MARKET - Stock Market Battles Between Order and Chaos - 7th April 25
Stocks Bull Market End Game Bear Start Strategy - 20th Mar 25
Gold and System Collapse: Charting the Bank Run of the Mighty US Dollar - 20th Mar 25
Tesla's Troubles — Is it Musk or is it More? - 20th Mar 25
The Stock Market Bear / Crash indicator Window - 9th Mar 25
Big US Tech Stocks Fundamentals - 9th Mar 25
No Winners When The Inflation Balloon Pops - 9th Mar 25

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China FX Reserves and CNY Implications

Currencies / China Currency Yuan Sep 07, 2015 - 12:56 PM GMT

By: Ashraf_Laidi

Currencies

China FX reserves fell $94 bn to $3.56 tn in August, posting the biggest decline on record, tell us a little more than just China is slowing.

We already know that a key reason to the decline in reserves is China's selling of reserves, such as US treasuries, in order to support the CNY, preventing it from falling rapidly after last month's devaluation announcement.


We also know Beijing has allocated as much as $90 bn from reserves to recapitalize local banks.

Thus, the policy of selling reserves aimed at stabilizing the CNY is unsustainable, which highlights our expectation for the currency's long term direction to be downwards. This is already shown in the chart below, illustrating that yuan's offshore rate (traded in Hong Kong) is lower than then onshore rate due to PBOC intervention in the latter and growing capital outflows impacting the former.

USD/CNY Onshore Rate

Back to the Fed & Yields

We mentioned last week the uncharacteristically high level of US 10-year yields relative to the recent declines in US equity indices, asking "If China were not selling treasuries to prevent CNY declines, then how low could yields be?"

The declining SPX/Yields ratio, suggesting that it's a matter of time before yields catch-down with stocks, regardless of whether the Fed raises rates or not.

And so we reiterate it's a question of time before Beijing's seizes its currency manoeuvres and lets its currency depreciate. This time, instead of reversing the rise of the currency, it becomes, slowing its decline.

For more frequent FX & Commodity calls & analysis, follow me on Twitter Twitter.com/alaidi

By Ashraf Laidi
AshrafLaidi.com

Ashraf Laidi CEO of Intermarket Strategy and is the author of "Currency Trading and Intermarket Analysis: How to Profit from the Shifting Currents in Global Markets" Wiley Trading.

This publication is intended to be used for information purposes only and does not constitute investment advice.

Copyright © 2015 Ashraf Laidi

Ashraf Laidi Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in