CNH and CNY on a shaky ground post US election - Westpac

Sean Callow, Research Analyst at Westpac, notes that the Chinese yuan has fallen a little over 5% over the past 12 months, second only to the Malaysian ringgit among Asian currencies.

Key Quotes

“However, since the US election, CNY and CNH are about middle of the pack within Asia. USD/Asia surged into year-end, backed by steeply higher US yields as markets priced in wider US budget deficits, higher inflation and faster growth.”

“This year has seen a cooling in such expectations, allowing the yuan to recapture some lost ground, though as the chart shows, it is a modest move in context.”

“It is hard to isolate any impact on the yuan from fears of sharply increased US-China trade tensions. President Trump did not deliver on his promise to label China a currency manipulator on day 1 of his administration and in his first call with President Xi, dropped his previous suggestion that the One China policy was open to negotiation.”

“Yet Trump’s top trade advisor is the author of “Death by China” and it is clear that US trade deficits with Mexico and China are a very high priority for the administration. Protectionist measures will follow, but it is not yet clear in what form.”