Chinese Yuan: Appreciation trend outweighs yield gap – Commerzbank
Commerzbank’s Thu Lan Nguyen notes that despite the People’s Bank of China (PBoC) relaxing the cap on US Dollar (USD) deposit rates, the Chinese Yuan has already appreciated about 3% against the Dollar this year. With CNY gains outpacing interest differentials and foreign currency deposits still rising, Nguyen expects the Yuan’s appreciation trend versus the US Dollar to persist in coming months.
PBoC move seen limited for CNY
"The announcement is therefore likely to have little impact. This is also because the current interest rate differential on 1-year time deposits, at around 2.2%, is not significantly lower than the current interest rate differential on 1-year government bonds, which stands at 2.7%. Furthermore, both interest rates are currently lower than the appreciation path the CNY is on against the US dollar."
"If one looks at the 3-month change in the USD-CNY exchange rate and annualizes this figure, one has to go back to May of last year to find an appreciation that is below the interest rate differential. This means: At least in hindsight, from a performance perspective, it has made no sense in recent months to hold US dollars instead of CNY, even though US dollar deposits earned higher interest."
"Since the start of the year, however, the CNY has appreciated by about 3% against the US dollar. Consequently, there is currently little sign of depreciation pressure."
"And yet, foreign currency deposits at Chinese banks have been rising rapidly for months. Since February of last year, corporate foreign currency deposits at Chinese banks have been growing at a double-digit rate year-over-year and most recently reached 602.4 billion USD, the highest level since data collection began in January 2015."
"As mentioned, however, none of this has prevented the CNY from appreciating against the US dollar in recent months. And this trend is likely to continue in the coming months."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
WTI posts modest gains above $88.50 on unexpected EIA draw, Middle East conflicts in focus
Betting on 'U.S. Treasury yields plunging', bullish options trading volume for long-term U.S. Treasury and utility sector U.S. stock ETFs surges
The increasing activity in long-term U.S. Treasury options “very directly” reflects traders’ expectations for a decline in long-term interest rates. Utility stocks have added a new logic due to rising power demand from AI data centers. Historically, whenever U.S. Treasury yields retreat, these two sectors are often the first to benefit and see sharp rebounds. Analysts believe that the battle between high interest rates and the AI frenzy has become the core narrative in the current market.
Impact of Surging US Treasury Yields: US Stock PE Ratio Shrinks Significantly, Mag 7 Dominates Small Caps
The 10-year US Treasury yield has reached a 24-year high, quietly reshaping the landscape of the US stock market. The S&P 500 forward price-to-earnings ratio has compressed from 22.2 times at the beginning of the year to 19.3 times, marking a “three-tier decline in valuation.” Meanwhile, the Russell 2000 Index is approaching technical correction territory, while Mag 7 stocks like Microsoft and Nvidia continue to support the broader market with the AI narrative and strong earnings. Market concentration is nearing historic extremes.
Has the "only buyer" of Korean stocks left early?
Over the past two months, Samsung and SK Hynix have alone absorbed over $25 billion in sell pressure. Now, Samsung Electronics has completed its buybacks ahead of schedule, and SK Hynix is left with only about $500 million to finish up. On their "exit" day, the KOSPI instantly dropped by 2%. More dangerously, Samsung's Q3 results missed expectations for both revenue and profit. Coupled with ETF rebalancing and options expiry, a "liquidity vacuum" has become a reality, leaving the question of who will step in as the biggest mystery.
Crypto prices
More
