Yuan in Eye of Hurricane
Bloomberg: China Has Got the Yuan in a Sweet Spot
This “honeymoon” for the yuan will likely last in the near term as the dollar continues to weaken before the outlook for U.S. fiscal stimulus clarifies, according to Zhong Zhengsheng, managing director of Beijing-based research firm CEBM Group Ltd. “The most likely scenario is that the yuan will remain stable or rally against the dollar, while it silently depreciates versus a basket of exchange rates,” he wrote in a Feb. 6 note.
It’s called the eye of the hurricane, and it’s not a “sweet” spot. The yuan is still depreciating, but it’s hidden by the decline in the U.S. dollar. Once the U.S. dollar resumes appreciation, the yuan will resume its decline. For the bears this is a sweet spot to be building a position.