China’s Yuan Standout Funder for Emerging-Market Carry Trade

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(Bloomberg) -- The historic end to super-easy monetary policy in Japan and a surprise rate hike in Taiwan have strengthened the yuan’s appeal as a funding...

-- The historic end to super-easy monetary policy in Japan and a surprise rate hike in Taiwan have strengthened the yuan’s appeal as a funding currency for the global emerging-market carry trade.Gucci’s China Shock Reverberates Across the Luxury Landscape

The yuan “has become more of an option for funding with the People’s Bank of China in easing mode as the economy struggles to find its footing,” said Brendan McKenna, an emerging market economist and currency strategist at Wells Fargo Securities LLC. The yuan’s one-month implied volatility hit its lowest since 2017 earlier this month before rising on Friday. The offshore yuan’s interbank interest rates in Hong Kong, a benchmark gauge of offshore yuan’s borrowing costs in Hong Kong, has fallen to around 3%, from a peak of nearly 4.5% in September.

On Monday, the nation’s currency chief Masato Kanda said the recent weakening of the yen was driven by speculation and said the government could take action against “excessive fluctuations.” The yen is the worst performing G10 currency this year, losing about 6.8% of its value against the dollar.

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China’s Yuan a Standout Funder for Emerging-Market Carry TradeThe historic end to super-easy monetary policy in Japan and a surprise rate hike in Taiwan have strengthened the yuan’s appeal as a funding currency for the global emerging-market carry trade.
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