Analysts at TD Securities point out that the U.S. Treasury Secretary Mnuchin has stated that the U.S. and China have come to a “currency provision” while in the process of trade negotiations, though no details have been released as to what this entails.
Key Quotes
“While it may only imply a pledge by China to not engage in competitive devaluation, other more stringent forms of the currency provision could have rather market-relevant implications for CNY, EM FX (particularly Asia), and even for broad USD volatility.”
“Clues to the currency provision may be derived by the recent USMCA and revision to KORUS and may include increased transparency, provision of data. China may agree to better management of FX depreciation pressures and volatility.”
“Any deal limiting CNY weakness would benefit CNY sensitive currencies such as KRW and TWD, but relief is likely to be short lived given ongoing structural trade and tech pressures.”
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