China’s booming economy fuels alternative yuan exchanges


Optimism about the Chinese economy is fueling some alternative bets in the forex market.

Buy the yuan against the Singapore dollar and the yen hoping that China’s growth will outperform the region, analysts say. This bullish outlook propelled the Bloomberg CFETS RMB Index, which tracks the movement of the Chinese currency against 24 trading partners, to its highest level in three weeks.

While the bet on the yuan against the dollar – as China recovered faster from the pandemic – returned around 7% in 2020, the two currencies are moving more or less in parallel this year as the US economy begins to shrink. bounce. The alternative strategies also reflect how Wall Street is increasingly positioning the Chinese currency as a global game, with banks looking for more market creation opportunities

The yuan is likely to remain strong against the basket of currencies, according to Mitul Kotecha, chief emerging markets strategist for Asia and Europe at TD Securities in Singapore. “We believe China is keen to maintain a relative outperformance of the CNY on a trade-weighted basis. The PBOC has pegged CNY stronger than expected 16 over the past 20 days, which is a change from the past few months. “

The recommendations relate to how the yuan trades against its partners, such as the euro and the yen, in the basket. However, transactions against other currencies can be executed in two steps via the dollar.

Citigroup Inc. strategist Gaurav Garg recommends long positions in the offshore yuan against the Singapore dollar on expectations that China’s official CFETS RMB index could rise further due to the country’s strong trade balance. The currency pair is tracking the index movement “relatively well,” Garg wrote in a note this week.

For Scotiabank’s Qi Gao, he prefers to exchange the yuan for the Japanese yen. Better deployment of vaccines in the European Union should boost the euro, and therefore the yuan, because of their close correlation.

So far this month, the yen and Singapore dollar have risen against the offshore yuan.

Another way to profit from expectations of a stronger yuan is through the carry trade, according to Bloomberg Intelligence strategist Stephen Chiu. The baht can be used as a funding currency to invest in the offshore yuan, with Thailand having to keep rates low for longer as its tourism-dependent economy takes longer to recover from the pandemic, he said.

– With the help of Livia Yap and Qizi Sun


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