In the wake of the conflict between Russia and Ukraine, the renminbi initially appeared as a safe-haven currency, but it was only an atypical safe-haven currency.
A safe-haven currency is one that global investors choose to avoid risk or appreciate when economic fundamentals are uncertain. Before and after the cyclical highs of the VIX index since 1990, the DOLLAR index mainly rose at the peak of market panic, the risk aversion of the Japanese yen was significantly stronger than that of the Swiss franc, and emerging market currencies, including the RMB, showed obvious risk attributes.
Market panic intensified on Feb. 24 after the Russia-Ukraine conflict erupted, sending U.S. debt and gold prices higher, the dollar index higher, and the euro and pound duly falling sharply. However, the unexpected strengthening of the RMB exchange rate, showing a certain nature of a hedge currency.
From the perspective of theoretical factors, a country’s stable economic and political environment, strong monetary liquidity and long-term low interest rate environment are the main factors affecting the nature of currency hedging. From the perspective of actual appreciation mechanism, the core of dollar haven appreciation lies in the role of the United States as a safe haven, which is often manifested as “double rise of debt and foreign exchange. The hedge and appreciation mechanism of yen and Swiss franc is mainly the end of carry trade and self-fulfilling appreciation expectation.
China’s stable macroeconomic environment is an important basis for keeping the purchasing power of RMB stable. However, unlike the financial market development of the United States, Japan and Switzerland, financial openness and interest rate level are different. After the conflict between Russia and Ukraine, although RMB began to have the characteristics of a safe-haven currency, RMB bonds lacked the attributes of a safe asset.
Whether yuan assets become safe havens depends on whether the risks are good or bad for China. If China is insulated from risks or less exposed to risk events, the yuan could become a safe haven asset. But when China is involved, the renminbi is hardly a safe haven asset.
Tip: The dollar continued to strengthen, gold hit its highest level in nearly a month, and oil rose more than 7% to the 100 mark. For specific operation, please pay attention to the reelfinancial.com. The market is changing rapidly, so investment should be cautious. The operation strategy is for reference only.