The Fed is going to blow up China

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As I have argued for a year or so, the Fed rate hiking cycle was always going to end not in a US crisis but a Chinese one. This is because a rising DXY and falling CNY puts a lot of pressure on EM capital flows and China has been experiencing those hand over fist after its entrance into MSCI indexes.

As well, the new development mantra of “common prosperity” might rightly be called “slow China”, so it has been obvious for some time that capital would face the reckoning of monetary loosening and a falling CNY. Now it is:

This basic macro set-up is now augmented by some other very serious tailwinds for more CNY falls:

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About the author
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.