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In a report by Reuters News, it has been noted that the US government expects China to honour its commitments to buy more US goods. Markets were waiting for some news on this with respect to the coronavirus and the presumption that China would not be able to commit to the agreements under a trade deal signed by the world’s two largest economies in January.

The news comes via a senior US Treasury official speaking on Thursday.

The official said it was still too soon to make accurate forecasts for the impact of the virus on the global economy, but the base case scenario foresees a V-shaped impact that would see China’s growth drop in the first quarter and then rebound.

Asked if the outbreak would require changes to the Phase-one trade deal with China, the official said, “At this stage, we’re not expecting changes to the implementation of Phase 1 … We still expect them to meet their commitment, but it’s over a period of time.”

Under the deal, which took effect this month, China has pledged to increase US goods purchases by $77 billion in 2020 and by $123 billion by 2021, compared to a baseline of US imports from 2017, the year before the US–China tariff war began,

– Reuters News.

FX implications

This news, coupled with the People’s Bank of China, responding to the coronavirus by reducing the country’s benchmark loan prime rate (LPR) to lower borrowing costs and ease financial strains on companies hit by the virus epidemic, should be supportive to risk-FX, weighing on the yen, the US dollar but supportive to the AUD. In US benchmarks, we are seeing some stability again following the negative start to the day. However, this is a complex matter and the prevailing uncertainty will not enable a sustained risk-on beat in financial and commodity markets. China is renowned for talking a great talk…encouraging an optimistic outlook for its economy, but the matter of fact could be something far less positive which would ultimately support the US dollar. 

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