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CHINA: CNY Sells Off As RTRS Flag Potential For Depreciation To Counter Trump

CHINA
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USD/CNH quickly adds ~400 pips after RTRS sources state that “China's top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher trade tariffs in a second Donald Trump presidency.”

  • The piece also noted that “the contemplated move reflects China's recognition that it needs bigger economic stimulus to combat Trump's threat of bigger tariffs, people with knowledge of the matter said.
  • A reminder that the PBoC has reintroduced the countercyclical factor to its daily CNY mid-point fixing in the time since Trump’s election victory (see chart below for USD/CNY mid-point fixing vs. BBG survey median).
  • That, coupled with the RTRS sources piece, suggests that the central bank could be quelling yuan losses for now to preserve room to depreciate the CNY on its own terms as a counter to any Trump tariffs.
  • The RTRS piece also noted that “a third source privy to the central bank's thinking told Reuters the PBpC has considered the possibility the yuan could drop to 7.5-per-dollar to counteract any trade shocks.”
  • The initial reaction has faded after Monday’s high in USD/CNH held (session highs of 7.2921 vs. Monday’s peak at 7.2927), with the pair now ~200 pips off session highs, last 7.2720.
  • A break of Monday’s highs would expose CNH7.3000, which protects last week’s ’24 high (7.3148).

Fig. 1: USD/CNY Mid-point Fixing Vs. BBG Survey Median

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USD/CNH quickly adds ~400 pips after RTRS sources state that “China's top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher trade tariffs in a second Donald Trump presidency.”

  • The piece also noted that “the contemplated move reflects China's recognition that it needs bigger economic stimulus to combat Trump's threat of bigger tariffs, people with knowledge of the matter said.
  • A reminder that the PBoC has reintroduced the countercyclical factor to its daily CNY mid-point fixing in the time since Trump’s election victory (see chart below for USD/CNY mid-point fixing vs. BBG survey median).
  • That, coupled with the RTRS sources piece, suggests that the central bank could be quelling yuan losses for now to preserve room to depreciate the CNY on its own terms as a counter to any Trump tariffs.
  • The RTRS piece also noted that “a third source privy to the central bank's thinking told Reuters the PBpC has considered the possibility the yuan could drop to 7.5-per-dollar to counteract any trade shocks.”
  • The initial reaction has faded after Monday’s high in USD/CNH held (session highs of 7.2921 vs. Monday’s peak at 7.2927), with the pair now ~200 pips off session highs, last 7.2720.
  • A break of Monday’s highs would expose CNH7.3000, which protects last week’s ’24 high (7.3148).

Fig. 1: USD/CNY Mid-point Fixing Vs. BBG Survey Median

Keep reading...Show less