China USDCNY yuan

Whither The Yuan

A little over three months ago, I warned investors not to forget about the Chinese yuan. The period of subdued dollar strength that followed the Shanghai Accord in February and the Fed's decision to keep rates on hold at its March meeting allowed Beijing to go ahead with its unstated policy of weakening the trade-weighted yuan while gently (and that's key) guiding the CNY lower against the dollar. After all, if you've got a quasi peg as China does, and if your economy is export-driven, just about the last thing you need is for the currency to which your currency is pegged to strengthen. If it does, the goods you export will become more expensive on the world market and your economy will suffer. That's why China devalued the RMB in the first place and it's also why they adopted the trade-weighted index as a reference point last December. Here's a bit of visual history via Goldman, followed by some commentary: We often encounter the view that the RMB is asymmetric, by which people mean that the currency weakens when the Dollar appreciates, but doesn’t commensurately strengthen when the greenback weakens. Intuitively, the fact that the CFETS basket has fallen around 10 percen
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