Goldman Sachs on Yuan: Meaningful asymmetry uncovered

Analysts at Goldman Sachs published their latest statistical report on the recent relationship between the US dollar and Yuan, noting that the dollar-yuan pair reflects a meaning asymmetry.

Key Points:

“We have spent recent weeks modeling the fixing mechanism for $/CNY. In the process, we uncovered meaningful asymmetry, meaning that the RMB does not reverse declines made on Dollar strength when the Dollar weakens.”

“This episode of Dollar weakness is a case in point, with the CFETS basket resuming its fall after a period of stability.”

“Even beyond the trade-weighted decline in the RMB, we have argued that a rising USD makes things difficult for China, because it means that $/CNY has to fix higher, which carries the risk of accelerating capital flight.” 

“We often encounter the view that the RMB is asymmetric, by which people mean that the currency weakens when the Dollar appreciates, but doesn't commensurately strengthen when the greenback weakens. Intuitively, the fact that the CFETS basket has fallen around 10 percent while the Dollar has been stuck in a range means that this is true almost by definition.“

“We find that the response in $/CNY fixings became asymmetric in the direction of RMB weaker from March of this year, but has shown signs of abating recently.”