Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Are EM Currencies in a Carry-Trade Environment?

Cross-Asset Liquidity Strategist, CrossBorder Capital

Michael J. Howell

Cross-Asset Liquidity Strategist

Implementing Research Using Alt Data & AI

CrossBorder Capital

CrossBorder Capital is a London-based independent investment advisory firm. Founded in 1996, it exploits a gap in the investment arena by focusing on Central bank liquidity. 

It specialises in the monitoring and analysis of global liquidity flows - an important determinant of asset prices, from currencies through to bonds, equities and real estate.

CrossBorder Capital implements its investment strategy and currently manages over US$ 350m.


Cross Asset Strategy

<ul>
<li>Chinese economy is mysteriously weak in 2021. Yet policy stimulus is so far muted
</li>
<li>China may be refocusing economy policy permanently away from ‘growth’ and towards ‘stability’
</li>
<li>This could mark a major ‘financialization’ drive linked to the growing international use of the Yuan</li>
<li>China’s domestic growth rate could potentially halve compared to the past decade</li>
<li>World GDP growth trend may be dented by around ½% per annum as result</li>
</ul>


Chinese economy is mysteriously weak in 2021. Yet policy stimulus is so far muted

China may be refocusing economy policy permanently away from ‘growth’ and towards ‘stability’

This could mark a major ‘financialization’ drive linked to the growing international use of the Yuan
China’s domestic growth rate could potentially halve compared to the past decade
World GDP growth trend may be dented by around ½% per annum as result


What China’s Economic Slowdown Really Means?

Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Technical Analysis

Further signs of USD weakness are coming through. The breaks on the DXY Index as well as the ones on key major currency pairs show that there is still more USD weakness to be seen before we might stabilise.

Further signs of USD weakness are coming through. The breaks on the DXY Index as well as the ones on key major currency pairs show that there is still more USD weakness to be seen before we might stabilise.

<ul>
<li>World economy skidding lower, led down by weak Chinese economy</li>
<li>Chinese monetary policy mysteriously ‘flat-lining’</li>
<li>Major policy ‘sea-change’ away from ‘growth’ towards ‘Yuan stability’</li>
<li>Unlikely, Chinese will embark on major policy stimulus</li>
<li>Bullish for Chinese government bonds… and growth stocks</li>
</ul>


World economy skidding lower, led down by weak Chinese economy
Chinese monetary policy mysteriously ‘flat-lining’
Major policy ‘sea-change’ away from ‘growth’ towards ‘Yuan stability’
Unlikely, Chinese will embark on major policy stimulus
Bullish for Chinese government bonds… and growth stocks


The World Economy Is Sinking … Will China Bail It Out Again?

Sometimes it is not what the market does but rather what the market does not do that can be more telling.The USD is down almost across the board following concerning sentiment data from the US which also took yields lower. BUT…Why is USDCNH unchanged?It brings us back to the conversation of ‘currency wars’The Renminbi basket has been trading near its multi year highs for several weeks. It is perhaps why the Chinese changed their RRR policy a few weeks ago. Recent data reflects a more relaxed recovery in China as it is worse than expected – see retail sales and industrial production as latest examples. The Covid situation in China is far from over as news, including partial closure of ports, clearly shows. In basic terms China is uncomfortable with its current situation and needs support. Given the rise of the Renminbi in broad terms over the past year, it appears now might be the time for that support to come in the form of a weaker currency.It is with this in mind that we must pay further attention to EURCNH which is turning from the covid panic lows of 2020. What business does it have trading around 7.60? The price action developments suggest we move higher. The technicals on the chart suggest the same. The logical path following the height of the Renminbi basket also points to the same, especially if this is the start of a decent enough short term move down on the USD.This possible tactical ‘rotation’ or ‘USD diversification’ on part of China (if indeed that is what we are seeing) could add further support to EURUSD, which once again has held on to good levels at 1.17.

Sometimes it is not what the market does but rather what the market does not do that can be more telling.The USD is down almost across the board following concerning sentiment data from the US which also took yields lower. BUT…Why is USDCNH unchanged?It brings us back to the conversation of ‘currency wars’The Renminbi basket has been trading near its multi year highs for several weeks. It is perhaps why the Chinese changed their RRR policy a few weeks ago. Recent data reflects a more relaxed recovery in China as it is worse than expected – see retail sales and industrial production as latest examples. The Covid situation in China is far from over as news, including partial closure of ports, clearly shows. In basic terms China is uncomfortable with its current situation and needs support. Given the rise of the Renminbi in broad terms over the past year, it appears now might be the time for that support to come in the form of a weaker currency.It is with this in mind that we must pay further attention to EURCNH which is turning from the covid panic lows of 2020. What business does it have trading around 7.60? The price action developments suggest we move higher. The technicals on the chart suggest the same. The logical path following the height of the Renminbi basket also points to the same, especially if this is the start of a decent enough short term move down on the USD.This possible tactical ‘rotation’ or ‘USD diversification’ on part of China (if indeed that is what we are seeing) could add further support to EURUSD, which once again has held on to good levels at 1.17.

China

The Chinese renminbi (yuan) is the official currency of The People's Republic of China. 

Price Gauge
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CNY (USDCNY CURNCY)

FX Dashboard: Are EM Currencies in a Carry-Trade Environment?

As the volatilities of the US dollar and EM currencies have dropped, we test the hypothesis and conclude that EM FX is in a carry-trade...

Gautam Jain, PhD, CFA

What China’s Economic Slowdown Really Means?

The lack of policy response to China's marked economic slowdown in 2021 suggests a strategic shift towards 'stability' and away from 'growth',...

Michael J. Howell

Fresh USD Breaks

Further signs of USD weakness are coming through against major currencies. These all suggest there is still more USD weakness to be seen at least...

Shyam Devani

The World Economy Is Sinking … Will China Bail It Out Again?

World economy is sinking, led down by China. Unlike 2008, do not expect a major Chinese policy stimulus to bail out the Chinese and World...

Michael J. Howell

What About the Renminbi?

Latest developments across FX markets lead us to ask questions about recent Renminbi strength and if that is about to change. Watch EURCNH

Shyam Devani

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52-week Range

Market Cap (USDm)

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