It was reported earlier that the U.S Dollar has edged higher against the Japanese yen. Yet, will the greenback lose its recent gains? As an analyst at Swissquote believes that there are 3 Reasons why China will stop buying US Treasuries.
11 January, Swissquote – The second-biggest buyer of US sovereign debt, China, is looking to reduce or even halt its enthusiastic purchase of American treasury bills. The decision is clearly political, and it warns investors to be ever-so-aware of the US Federal Reserve’s monetary policy. The net effect could be a lower greenback.
3 Reasons why China will stop buying US Treasuries
There are multiple reasons for China’s move:
1) especially since the recent tensions in North Korea, Chinese-American trade disagreements (particularly in agriculture and aviation) have intensified;
2) roughly 30% of China’s foreign exchange is in dollars – diversification is common sense; and
3) fixed-income investors are looking for alternatives to bubbled bonds, which will erode prices.
Speculation of Zumas exit
On a different note, speculation has increased over the removal of South African President Jacob Zuma. Judging from the rapid appreciation of the ZAR most of the good news in regards to political stability is already pricing in. However, a smooth transition will pressure USDZAR down further. In order to ensure a Zuma exit, the ANC has likely negotiated avoiding prosecution and compliance with standard legal procedures.
This open Zuma to resign in the next few months giving Cyril Ramaphosa the ability to end scandal-ridden government without breaking the ruling party into self-destructing factions. Despite the minor correction high beta EM currencies, we remain bullish due to broader macro-conditions.
This article 3 Reasons why China will stop buying US Treasuries was written by Peter Rosenstreich & Vincent-Frédéric MIVELAZ, Market Analyst at Swissquote.
While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein.
This document does not constitute a recommendation to sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or in any other kind of investments.