CNH underperformance partly mitigated by higher yield – ANZ

Irene Cheung from the Australia and New Zealand Banking Group (ANZ) says that yield pick-up has been a key support to ward off the Offshore Chinese Yuan’s (CNH) aggregate underperformance.

Key quotes

“The CFETS RMB index has been on a downtrend, but the pace of decline has slowed lately. This suggests that the market is gradually adjusting to a new paradigm for the US-China economic relationship.”

“CNH has underperformed on an aggregate basis in the crosses, but its yield pick-up remains key support.”

“We expect CNH’s positive yield differential to hold up, and even widen further vis-à-vis AUD and NZD as we still have rate cuts penciled in for the RBA (50bps) and RBNZ (75bps).”

“We also expect the ECB to continue with unconventional easing measures to support growth and spur inflation in the euro area. For MAS, we see a good chance that the central bank will shift to a neutral policy at the next policy review in April 2020.”

“We remain bullish in JPY (as a risk aversion currency) and have turned cautiously constructive in GBP given recent Brexit developments.”