BNY’s Head of Markets Macro Strategy, Bob Savage, has observed a sharp divergence between CNY forwards and spot rates, indicating hedge unwinding and asset outflows from the Chinese currency. Despite CNY's strong outperformance relative to its peers, BNY questions its viability as a safe haven, citing significant spot flows showing large outflows tied to expatriation over the past two days. Savage notes, 'CNY has strongly outperformed its peers, but we also struggle to see a strong case for how the currency can serve as a safe haven.' [1]
The past three sessions since the conflict began have generated the largest CNY forward/swap flows year-to-date, continuing a trend of similarly strong moves prior to the conflict. This suggests that while forward markets are showing strength, spot flows are dominated by outflows, potentially reflecting investor concerns and reactions to current developments. [1]
On the policy front, China’s central bank governor Pan Gongsheng reiterated that Beijing does not intend to use currency depreciation to gain trade competitiveness. He affirmed that the renminbi will not be used as a policy tool in trade disputes and that the People's Bank of China aims to keep the currency broadly stable. [1]
CONCLUSION
The divergence between CNY forwards and spot rates highlights uncertainty regarding the currency's safe haven status, with significant asset outflows observed. Despite strong forward flows, spot outflows and official statements from the PBoC signal a commitment to stability rather than competitive depreciation. Market participants may remain cautious as these dynamics unfold.