Latest Trade War Developments | WHAT REALLY HAPPENED


Latest Trade War Developments

Between Trump tweets and Chinese whispers via state-controlled media, it can be difficult to pinpoint precisely where things stand in the ongoing battle between the world’s two economic superpowers. Saxo's Christopher Dembik says the CNYUSD rate is the best proxy we have. Here’s why.

As Saxo Head of FX Strategy John Hardy and I both mentioned, we need to look closely at the Chnese yuan this week. In my view, the yuan fixing is the right proxy to understand how the US-China trade negotiations are going. And it isn’t pretty! Since the end of last week, the yuan/dollar fixing has been cut by 45pips to 6.8365. As negotiations are probably going nowhere in the coming days, we could see the fixing moving closer to 6.90. However, I don’t think that the psychological threshold of 7.00 could be reached as it would have deep negative consequences on local firms that use their CNY profits to repay their USD debt. A large devaluation is still a risk but is not the central scenario for the Chinese authorities.

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