From Morgan Stanley on the yuan
- CNY has continued to strengthen on a trade-weighted basis, moving to the highest level in over a year
- The current level of USDCNY points to a weaker DXY
The 'bottom line', where the MS comments in their weekly 'FX Pulse' go beyond CNY:
- As China continues pursuing its financial de-risking strategy post Party Congress, we keep a close eye on local developments.
- In the past decade, China's investment boom contributed to excess global capacity and low inflation. This could now change as China switches from supply to demand driven growth.
- We see this having negative implications for the 'canary' currencies, especially those that built up high household debt levels while rates were low and have a shortage of domestic savings, such as AUD and CAD. Moreover, we are constructive on EUR. The ECB's QE program weakened the EUR as foreigners sold bonds to the ECB. These RoW bond outflows should now slow as the ECB downsizes its QE program. Strong EMU growth should also continue attracting equity and FDI inflows, supporting EUR upside potential.
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Yep, stay tuned for the CNY 'fix', coming up just after 0115 GMT
