The Dollar is softer and pro-cyclical currencies are following the Yuan higher after news that China is preparing a CNY 2tn rescue package for the stock market. Economists at ING analyze FX market outlook.
Risk sentiment was boosted overnight as the Chinese government is reportedly considering a large CNY 2tn package to support the struggling stock markets. It does appear a temporary solution, though. Ultimately, stronger conviction on a Chinese economic rebound is likely necessary to drive a sustainable recovery in Chinese-linked stocks.
Doubts about the impact of Beijing rescue package’s effects beyond the short-term automatically extend to the FX impact. It does seem premature to call for an outperformance of China-linked currencies (like AUD and NZD) and softening in the Dollar on the back of today’s headlines.
DXY may stabilise slightly below 103.00 once the China-led risk rally has settled.