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According to Greg Gibbs, analyst at Amplifying Global FX Capital, the currency impact in recent weeks of the trade dispute/Huawei action has been dominated by a weaker CNY flowing onto weaker Asian currencies.

Key Quotes

“As USD/CNY has approached previous highs near 7.0, the fall in CNY has slowed, helping slow the fallout to currencies in the region.”

“The USD has tended to gain broadly, but this may also reflect the deteriorating Brexit process and the conflicting political ambitions of European political parties ahead of the EU parliamentary elections on 23-26 May.”

“The trade dispute, in the early phases, is dampening global economic growth and generating weaker trends in riskier assets, including EM and commodity currencies, especially those with significant trade links to China.   This includes the EUR and AUD.”

“However, we have to be wary of the trade dispute undermining confidence in the US economy, and bringing forward rate cut expectations in the USD.   This may tend to weaken the USD at some point.   This is more likely to show-up first against JPY, CHF and gold.”

“We see a high risk that USD/CNY continues to rise as the Chinese economy shows signs of weakness and the trade dispute undermines economic confidence.”

“The INR and AUD bounced on election results that provide specific reasons for these currencies to strengthen.   But they will not be immune from a weaker CNY and weaker Chinese economy.”