Societe Generale analysts report that the Chinese Yuan (CNY) has resumed its strengthening trend, with the USD/CNY exchange rate approaching 6.80 for the first time in three years. This rally is attributed to increased transits of China-linked tankers through the Strait of Hormuz, highlighting the Yuan's growing role as a regional safe-haven currency. The analysts note that this safe-haven status is underpinned by China's energy resilience, supportive policy measures, and limited exposure to the Middle East conflict, even as domestic credit growth slows and 10-year China Government Bond (CGB) yields fall below 1.79% [1].
The safe-haven dynamic is not limited to the currency market; both onshore Chinese equities and bonds are exhibiting defensive behavior. The 90-day correlation between the CSI 300 Index and the Bloomberg China Treasury Total Return Index turned positive in mid-March, indicating that these asset classes are moving in tandem and outperforming both Western and regional peers during periods of risk aversion [1].
Despite these positive flows into safe-haven assets, recent credit data released yesterday showed that outstanding credit growth in China slowed to 7.9% year-over-year, marking the weakest pace since November 2024. Additionally, the yield on 10-year CGBs has slipped below 1.79%, which is below the 200-day moving average. With market sentiment already described as fragile, Societe Generale suggests that Chinese government bonds could attract further demand if upcoming first-quarter GDP and activity data, set to be released tomorrow, disappoint expectations [1].
CONCLUSION
The Chinese Yuan's strengthening and its emerging safe-haven status are being supported by defensive flows into Chinese assets, despite weakening domestic credit growth. Market participants are closely watching upcoming economic data, as further disappointments could drive additional demand for Chinese government bonds.