Last week was another trade war week, as the market has been looking for clues on the Chinese retaliation measures against the Trump tariffs that are planned to go live on 6 July, according to analysts at Nordea Markets.
“The fact that Trump is threatening with new tariffs on goods worth a total of USD 450bn makes the retaliation process trickier for China. It is simply not possible to retaliate symmetrically, as there are not enough US exports into China to tax. This leaves an elevated risk of unorthodox retaliation measures being used.”
“The Shanghai Composite is down almost 23% since its peak in January. The general risk off and lack of faith could be the reason for the weakening CNY.”
“No matter whether or not the PBoC has been a part of weakening the CNY (some Chinese sources indicate that the PBoC has helped the weakening trend), the current market situation may not be too bad for China, as a market-based upside pressure on USD/CNY allows China to 1) sell USD, 2) sell Treasuries and 3) ride the impulse from a slightly weaker currency.”
“We ultimately think that the PBoC will safeguard the 6.70 level in USD/CNY, as it would otherwise risk spurring another round of massive capital outflows as was seen after the devaluation in the autumn of 2016.”
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