President Trump’s comments blaming China for meddling in the US presidential elections have dampened market mood, triggering fears about the consequences of a trade war escalation. In this context, the FX Analysis Team at TD Securities warns about a yuan devaluation if Sino-US relationship might continue deteriorating.
“The Trump administration has recently stepped up its rhetoric against China. The US-China relationship was already fragile on the trade and technology front, but the relief from the Phase 1 trade deal didn't last long. COVID-19 and the upcoming US election have added fuel to the fire.”
“We don't think that this is just politics. There is bipartisan support in the US for pushback against China and irrespective of the outcome of the election, we expect the rift between the US and China to grow over time.”
“We continue to believe that CNY will not be "weaponized" for the purposes of the trade war, but if we get a substantial deterioration in the relationship, we see no reason that the PBoC would use the fixing to push CNY strength or stability against what may be strong upside pressure on USDCNY from the USD.”
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