The CNY is on the Move Again & Could Be Good for Gold

April 27, 2023
By Steven Vannelli, CFA in Economy, Markets

With inflation receding in the US, the Chinese Yuan (CNY) has been depreciating. At peak US inflation, the CNY got down to 6.35, while it has risen to 6.92 in the last year. Inflation getting back to 2% would seem to be consistent with a level of 7-7.20.

It makes sense then that the CNY has been trading in tandem with fed funds futures for 2023. Any further rate cuts priced in would seem to be related to a further weakening in the CNY.

So, what does well when the CNY devalues? In the chart below I plotted the CNY on the S&P 500 relative to gold. CNY devaluation tends to preference gold over US stocks.

With the disinflation cycle underway, investors should be alert to changes in the CNY as it has asset allocation implications.


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