• 2 hours Silver Steadies Following Wild Week In Precious Metals Markets
  • 18 hours $5 Million Gold Toilet Vanishes
  • 18 hours Gold On The Rise After Fed Rate Cut
  • 21 hours Oil Trader Loses $320 Million On Derivative Bets
  • 2 days S&P 500 Officially In An Earnings Recession
  • 2 days Miners Are Weathering The Trade War Storm
  • 2 days UK Credit Card Interest Rates Are Skyrocketing
  • 3 days From Frenzy To Flop, The Death Of This Year’s Most Hyped IPO
  • 3 days Are Smart TVs Spying On Us?
  • 3 days Is Fossil Fuel Divestment A Waste Of Time?
  • 4 days A Russian Billionaire’s Space Quest To Save Humanity
  • 4 days Markets Take Breather As Consolidation Continues
  • 4 days Economic Woes Weigh On Copper Prices
  • 4 days World's Largest IPO At Risk Following Drone Strikes
  • 5 days Gold Is Beating Buffett’s Berkshire Hathaway
  • 5 days What’s Behind The Silver Sell-Off?
  • 5 days The Retail Apocalypse Is Accelerating
  • 5 days The Top Tech Stocks Of The Year
  • 6 days America’s Workforce Elderly Workforce To Double By 2028
  • 6 days Toyota Tests Solar-Powered Prius
Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Ashraf Laidi

Ashraf Laidi

AshrafLaidi.com

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

Contact Author

  1. Home
  2. Markets
  3. Other

China FX Reserves and CNY Implications

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.

 

Back to homepage

Leave a comment

Leave a comment