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2022-04-27 Caucasus/Russia/Central Asia
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How China's neutrality on Ukraine war fuels the narrative of a weakening yuan
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I was assured that selling dollars and buying yuan (or better yet, rubles) was the way to go.
[SCMP] Foreign exchanges seem to have concluded that there are not only good reasons to buy the US dollar but also specific reasons to sell the renminbi. The attractiveness of rising US Treasury yields accounts for much of the current allure of the US currency to investors.
The US Treasury market is rapidly pricing in the likelihood that the Federal Reserve moves hard and fast to raise benchmark interest rates in an attempt to rein in US consumer price inflation that has reached levels not seen since 1981.
The net effect of accommodative PBOC monetary policy and a hawkish Federal Reserve has been the compression of the nominal China-US benchmark 10-year bond yield differential that previously favoured yuan-denominated Chinese government bonds over US Treasuries. The absence of a yuan-supportive China-US yield differential removes a bulwark of support for the renminbi on foreign exchanges.
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Posted by Matt 2022-04-27 00:00||
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