Research Briefing | Mar 1, 2022

China’s renminbi (CNY) will benefit from its safe haven status

The renminbi (CNY) has demonstrated its resilience to global market volatility in recent months, holding steady against the US dollar and other currencies. This has happened despite China is experiencing a significant economic slowdown, a narrowing in China-US yield spreads, and most recently, the Russia-Ukraine war.

What you will learn:

  • As financial markets are likely to remain volatile in the near term due to worries over inflation, supply chains, geopolitical risk, and rising global interest rates, we expect the CNY will remain durable in H1.
  • However, policy divergence with the US and a smaller current account surplus in 2022 will become increasingly important in determining CNY movements and will weigh on currency exchange rates in H2.
  • Meanwhile, sanctions on Russia by the US, EU, and their allies will increase the usage of CNY in international financial transactions. However, the impact on the CNY exchange rate will be limited, as trade with Russia accounted for only 2.4% of China’s goods trade as of 2021.

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