USD/CNY Carry · when a factor ages
A classic FX carry trade, now gated by PBOC fixing behaviour. A case study in what happens when central banks decide a factor is inconvenient.
This template is a teaching case, not a recommendation. It shows what happens when a working factor meets an intervention-willing central bank.
Roll-down carry on 3M NDF, fixing-gated
Why this works
FX carry harvests the forward premium when interest rate differentials persist — classic uncovered interest parity violation. What makes this a teaching case is that it stopped working as cleanly post-2018 due to PBOC counter-cyclical adjustment: the signal is intact, but the regime gating is what determines whether you make money. Great material for learning when a factor ages.
Common pitfalls
- Ignoring fixing intervention. PBOC smooths CNY fixing against the USD — your carry can be wiped out by a single adjustment.
- Using spot-implied yields instead of NDF-implied yields. They diverge by 30–80 bp in stressed regimes.
- Treating the 2014–2017 regime as representative. Post-2018 the strategy needs heavier gating.
Try it yourself
Fork the template into your workspace. The entire configuration — code, parameters, backtest window, cost model — lands in a new private session. Tweak it, break it, and see how robust the edge actually is.
Backtest result
Equity curve
Enter long NDF carry when rate differential > 220bp and fixing deviation < 1.5%. Roll monthly.
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A checklist for evaluating any strategy you did not write yourself. Required reading before forking.
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Fork it into your workspace.
The whole template — code, parameters, backtest config — lands in a new private session. Tweak it, run it, break it, learn.