Investing.com — Barclays (LON:) analysts said in a note that shifting short positions on currencies from the euro and other European proxies to the (CNY) and its pegged currencies would be a better way to position amid the increasing likelihood of higher rates for China under the new US administration.
While highlighting China’s vulnerability to tariffs, Barclays pointed out that despite these risks, the yuan and its proxies have held up well against other currencies, leaving it short on hold.
The dollar’s rally last week was driven by geopolitical tensions, weak European economic data and political instability in France.
However, Barclays noted that major European currencies such as the euro and British pound have significantly underperformed against the yuan-linked moves, as have other G10 currencies such as the Australian (AUD) and New Zealand dollar (NZD), and Scandinavian currencies such as the Norwegian dollar. crown (NOK).
In emerging markets, China-sensitive currencies including the South Korean won (KRW), the Taiwan dollar (TWD) and the Thai baht (THB) have outperformed currencies in the Central and Eastern European region (CEE3) , such as the Polish zloty. (PLN) and Hungarian forint (HUF).
Latin American currencies such as the Peruvian sol (PEN) and the Chilean peso (CLP), which are highly exposed to Chinese commodity demand, have also shown resilience.
“Not only is the CNY far too stable for the magnitude of trade risks facing the Chinese economy, but the market also does not appear to be positioned for these risks via the natural Chinese proxies, both in the G10 and emerging markets” , one analyst wrote.
The bank expects a potential decline in lagging currencies such as AUD, NZD and NOK in G10 markets and KRW, TWD and THB in emerging markets if Chinese tariffs materialize, increasing pressure on these economies.
