Arjen van Dijkhuizen, senior economist at ABN AMRO, suggests that after last year, a 10% depreciation of the yuan versus USD helped to mitigate the impact of US tariffs, but since the recent re-escalation the Chinese authorities have acted to keep yuan weakness contained.

Key Quotes

“The US Treasury has again not declared China a ‘currency manipulator’ in their recent bi-annual report on foreign trade partners’ exchange rate policies. We are still of the view that Beijing will refrain from using a weaker yuan as a weapon in the trade conflict, partly because a sharp CNY depreciation could trigger a surge in capital outflows (as it did back in 2015-16).”

“Still, the risk is increasing that they will allow some more yuan weakness should the US indeed step up tariffs on Chinese imports further. We have revised our USD-CNY forecasts for end 2019 and end 2020 a bit, to 6.90 and 6.70 respectively (both from 6.60).”

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