The offshore Yuan joined the party and reaped the rewards of a global market rally following the Federal Reserve’s indication that it is likely to cut US interest rates over the coming months.

USDCNH has fallen to its lowest level since mid-May at time of writing and has overall enjoyed a superb trading week against the USD. The pair has declined all the way from 6.93 to below 6.85 in a matter of days.

It does look like the ingredients for a perfect storm encouraging even further gains in the offshore Yuan is brewing in the background.

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The market is turning negative on the USD in a hurry, meaning investors are moving “all in” on emerging markets as a result of a potential flurry of capital inflows into the developing world following the Fed’s announcement, and also in anticipation of the meeting between US President Donald Trump and Chinese authorities at the G20 summit in Japan next week.

Should the market continue its recent negative turn for the USD and investors become excited that a resolution on these long-standing trade tensions is on the horizon, the offshore Chinese Yuan does have the potential to strengthen by as much as a further 5%.

What is even more encouraging about the prospects of a stronger offshore Yuan stemming from US-China trade optimism and a broadly weaker USD is the widespread contagion impact that this would positively spread all over global markets.

A stronger offshore Yuan would not only be looked upon positively and therefore act as a potential proxy for fellow emerging market currencies, but it would also have a feel-good impact broadly across the developing world.

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