Synopsis:

Goldman Sachs examines the significance of USD/CNY and USD/JPY movements on Asian FX, in light of recent notable fluctuations. While both currency pairs have been central to the performance of Asian currencies, there are distinctions in their impacts.

Key Points:

• Recent Movements: USD/CNY recently crossed the significant threshold of 7.10, influencing the broader USD/Asia rates. Concurrently, suspected large-scale interventions by the Bank of Japan (BoJ)/Ministry of Finance (MoF) aimed to stabilize USD/JPY after it momentarily surpassed 160.
• Sensitivity Analysis: Historical data and recent trends suggest that Asian FX markets are more sensitive to changes in USD/CNY than to USD/JPY fluctuations. The analysis shows that movements in USD/CNY have a more pronounced effect on the broader Asian FX landscape.
• Market Outlook: Over the next three months, Goldman Sachs anticipates that USD/Asia will remain strong. Although further interventions by BoJ/MoF could limit declines in USD/JPY, the prevailing rate differentials between the USD and JPY suggest minimal downward movement.

Conclusion:

Goldman Sachs concludes that for Asian FX, fluctuations in USD/CNY are more influential than those in USD/JPY. This insight is crucial for traders and investors in Asian markets, indicating a greater focus on the movements of USD/CNY for predicting trends in the region’s currencies. The ongoing developments in USD/CNY are expected to be a key driver of Asian FX dynamics, overshadowing the impact of USD/JPY under current market conditions.