Investors are betting that Beijing is finally taking the serious measures required to revive growth
It’s safe to say that the timing and scale of the stimulus measures unleashed by China this week were, in large part, prompted by the U.S. Federal Reserve’s jumbo-sized interest rate cut only a few days before.
And then the yuan got another boost this week, as Beijing rolled out a series of liquidity, monetary and fiscal stimulus measures running into the trillions of yuan. The offshore yuan has scaled the 7.00 per dollar barrier for the first time since January 2023. On that note, China’s nominal annual GDP growth rate right now is lower than that of Japan and the U.S., something few would have predicted only a few years ago.
“I continue to believe USD/CNY is heading lower, possibly by 10% in the coming year. Almost everyone is the wrong way around. Positioning adjustment will make this prospective decline non-linear,” he wrote on Wednesday. This plan involves high political risk, though. China and the United States are in a trade war that has escalated meaningfully in recent years. This has deepened the political divide between the two superpowers, which is partly why China has reduced its holdings of U.S. Treasuries.
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