Chinese Yuan Rebounds vs Dollar (USD/CNY) as Trade Tensions Cool
Since April, the Chinese yuan (or renminbi) has dropped sharply against the surging U.S. dollar. This has resulted in a sharp rise of the USD/CNY (US dollar vs Chinese yuan) currency pair. Much of the yuan’s apparent weakness against the USD has been due to the dollar’s sheer strength in recent months.
Chinese Currency Manipulation?
In addition, however, China has been accused by many, most notably President Trump, of actively “manipulating” and devaluing its own currency. China has been known to do so in the past to support its export-driven economy. A cheaper yuan makes China’s exports less expensive and more appealing to foreign buyers, thus boosting foreign sales.
Trade War Threat
Another major factor recently driving the yuan lower against the dollar has been the escalating threat that trade tensions between the U.S. and China would develop into a full-blown trade war.
As shown on the chart above, trade war developments often have a direct impact on the USD/CNY currency pair. For example, Trump and Chinese President Xi announced a 90-day trade war ‘ceasefire’ in early December. As a result, USD/CNY made the biggest two-day decline since 2005. This simply meant that the yuan appreciated sharply against the dollar on the news that tensions had begun to cool.
More recently, Trump has taken on an even more conciliatory tone with China. Trump stated that he would consider intervening in efforts to extradite the detained CFO of Huawei Technologies to the U.S. He added that such an intervention would be in the interest of facilitating a trade deal with China. These remarks helped boost the yuan, pressuring USD/CNY once again.
At least on the immediate horizon, USD/CNY will continue to be impacted significantly by how US-China trade negotiations play out. With Trump seemingly eager to get a deal done, there is increasing potential that the yuan will continue its rebound against the dollar and USD/CNY will continue its retreat.
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Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart