Via Citi:
Monday saw hawkish messaging from a White House press conference on China relations as outlined here. President Biden emphasized he would not rush towards significant changes in US-China policy. Under Secretary of State Anthony Blinken, we are likely to see a continued state of rivalry in the near-term albeit less volatile relative to the previous administration.
Our traders note that the CNH appreciation trend is unlikely to end though. Price action also shows that the market has ignored the above comments, with spot marginally lower at 6.4830 at the time of writing despite the USD bid/risk-off elsewhere. This may in part be explained by spot also running into various resistance levels.’
Our traders in the above note also flag that last night’s comment from Ma Jun, a monetary policy committee member, are likely behind this CNH resilience. Ma pointed out there are asset bubbles in the stock and property markets and he proposed a shift in monetary policy. Not many details were given, but this triggered some cautious sentiment that PBoC will turn to more contractionary monetary policy to control the asset bubbles. Ma also commented If RMB strengthens by another 5%, export firms may be under pressure, however PBoC shouldn’t intervene but can reform the outflow programs to balance the flows.” This underlined that the PBoC is not so nervous at current levels, and given this, our traders think the RMB out-performance story will remain.
Probably right for now but it is clearly a warning and when China slows and CNY falls, the AUD goes with it.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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