According to Frances Cheung, Research Analyst at Westpac, it is impractical for China to match goods tariff with the same quantity (at the same rates), being constrained by how much it imports from the US.
Key Quotes
“This has led to expectation/speculation that China may resort to other tactics, including ones via services trade and the CNY. Comment from SAFE that “corporates should hedge to protect themselves against yuan’s fluctuations” has not helped sentiment either.”
“While we believe China has the tools to stabilise the yuan if needed, the authorities may feel more comfortable to accept some CNY weakness driven by market forces, and only be there to try to avoid too rapid a move in the currency.”
“We continue to see the next resistance for USD/CNY at 6.76. CNY and CNH forward points have been under downward pressure, partly because of b/s USD/CNY flows. Market awaits June forward book which is to be released around end-July.”
“The balance of forex settlement and sales turned positive in April and May. This series should be closely monitored for any sign of a change in sentiment. In view of FX risks – a deterioration in the global trade picture is generally negative for EM currencies – entities may not rush to settle FX receipt but adopt a wait-and-see approach (i.e. not converting USD receipt into CNY yet).”
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