We have been stalwarts on saying the Dollar has peaked for this cycle. We also didn’t factor a Brexit vote into the USD path. Binary or not binary in hindsight that approach seems short sighted. We will take the market we have rather than the one we want which is what we have been doing when assessing risk and our outlook on how key asset classes will trade.
What are we looking at today is the unintended consequence but clear risk extension that comes from a dramatic move higher in the USD (UUP, quote) A move lower in the Chinese Yuan that is both larger in scope than expected and that comes with policy uncertainties from China that will then trigger larger risk off moves if not well translated.
Last night the Chinese set the CNY at 6.6375 which was 0.9% weaker than the close on Friday. The currency then traded to its lowest level since 2010 as a result. We don’t need to remind investors that China’s approach to devaluing the currency in August of 2015 set off a fire storm that led us into the new year and triggered fresh lows after a late fall rally.
See how the Emerging Money Team is playing Brexit today.
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- Heavy rain to hit central China