Yuan Chips Away at U.S. Dominance of FX Market 

(Bloomberg) -- The yuan is curbing the dollar’s dominance in driving price action among Group-of-10 currencies as Covid-19 reshapes global financial markets.

That’s the view of Dominic Bunning, HSBC Holdings Plc’s senior foreign-exchange strategist, who says the correlation between the offshore renminbi and many G-10 currencies has strengthened since the onset of the pandemic. The Chinese currency is increasingly influencing weekly price changes in the pound and commodity-linked currencies such as the Australian, New Zealand and Canadian dollars, he said.

“It is clear the RMB is becoming a more important driver of G-10 FX movements than it has been in the past” even though “the U.S. dollar is still the dominant currency in determining movements in G10-FX,” Bunning said in a note Tuesday.

Investors are betting China may be the only major economy to register growth in 2020. The Organization for Economic Cooperation and Development last week raised its forecast for the Asian nation to 1.8%, a huge improvement from the first quarter’s 6.8% plunge. The onshore yuan has strengthened about 4% since the end of June, looking to match the biggest quarterly gain since 2008.

At the heart of the yuan’s rise is the perception that China, the world’s second- largest economy, is rebounding and driving the global recovery from Covid-induced recessions, he said. As the country’s financial and currency markets open up, the renminbi “could become an ever more important anchor for global FX markets,” he added.

The yuan’s dominance is showing up more and more in Asia trading windows.

“The performance of some G-10 currencies during the Asian trading window has been notably different to that seen during the European and London time zones over the last month,” Bunning wrote. “This distinction also suggests the RMB is having a bigger hold on sentiment and FX performance compared to the past.”

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