We speculate that the recent yuan strength is to defend highly leveraged corporates and stem capital outflows. This is taken from "The Powell Put Pause Revisited" by The Macro Strategist:
"We also cannot help but speculate the pressure Powell received from President Trump stems to the negotiations with China. As pointed out here, China needs, may not want, a stronger yuan.
In order to have a repeat of the Shanghai Accord, the Fed cannot tighten as China eases due to the currency peg. China's monetary policy would have to reflect the Fed's stance on a relative basis.
If we look as Chinese financials (CHIX) and the USDCNY (inverted), we see the PBOC aggressively raising the yuan as Powell coddles market participants."
"The highly over-leveraged Chinese corporates and financial institutions cannot take a dramatically weaker yuan.
We can't say that Powell gave the PBOC the go ahead, but there is reasons to be that monetary policy concessions vis-a-vis pressure from Trump factors into working out a trade deal.
Could China buy more U.S. goods if their credit crisis blows?"
"We also cannot help but speculate the pressure Powell received from President Trump stems to the negotiations with China. As pointed out here, China needs, may not want, a stronger yuan.
In order to have a repeat of the Shanghai Accord, the Fed cannot tighten as China eases due to the currency peg. China's monetary policy would have to reflect the Fed's stance on a relative basis.
If we look as Chinese financials (CHIX) and the USDCNY (inverted), we see the PBOC aggressively raising the yuan as Powell coddles market participants."
"The highly over-leveraged Chinese corporates and financial institutions cannot take a dramatically weaker yuan.
We can't say that Powell gave the PBOC the go ahead, but there is reasons to be that monetary policy concessions vis-a-vis pressure from Trump factors into working out a trade deal.
Could China buy more U.S. goods if their credit crisis blows?"
