Amy Yuan Zhuang, Research Analyst at Nordea Markets, suggests that China’s trade war with the US will likely prolong, given both sides play hardball and as a result, market sentiment will likely remain negative, with the CNY and CNH remaining under pressure.
Key Quotes
“The trade war has escalated further with Trump raising the amount of Chinese goods subject to tariffs to a total of USD 250bn. He also threatened to ultimately tax all imports from China (USD 505bn) but so far only gave details to USD 250bn.”
“China maintained its defensive strategy and showed no willingness to back down. It announced retaliation tariffs of USD 60bn in early August, making the total amount of American goods subject to tariffs to USD 110bn.”
“The trade war is nowhere near an end and both sides will continue playing hardball.”
“The worsening conflict has hurt market sentiment in China more than in the US. The CNY (as well as the CNH) lost 7% against the USD and 5% against the basket since mid-June. Chinese equities lost around 15% during same time.”
“Although a weaker yuan is tempting to Beijing, we do not think it is interested in a currency war, which bears many risks. At the same time, there are also costs to heavily intervene in the FX market to counter market pressure. Thus, the CNY and CNH will remain under pressure but not likely allowed to weakened too much further.”
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