The national currency exchange rate as an advantage in trade talks

Tensions around the trade war decreased markedly after the United States announced trade concessions for a number of goods from China. The market began to show an increase in optimism. The states have revised the list of goods that are subject to duties in the new trade framework in the amount of 10%, which will be introduced on September 1.

The general skepticism about trade negotiations and the trade war as a whole remained in the market despite the fact that China also confirmed the upcoming trade talks with the United States.

National currency rate

Earlier, one of the most pronounced reactions of China to the possibility of introducing new duties by the United States was the devaluation of the Chinese yuan, which the market regarded as a response.

Read: “A new front opens in the trade war”

The concessions on the part of the White House were triggered by productive phone talks and concerns about the Christmas shopping season, which could be affected by these duties. This can cause a serious blow to two important factors at once:

• the US retail sales, which have only resumed after a three-month decline, are an important indicator of the US economic growth.
• D. Trump’s position in the US presidential race in 2020. Which is actually one of the key goals of the Trump administration in the near future. But Trump did not completely abandon the new duties, retaining some leverage in negotiations with China.

China’s positions are less obvious in this situation, but more predicted than the Trump’s position. So, the main obvious concessions to China was the stabilization of the Chinese yuan, which is trading against the US dollar in the region of 7.020-060. The dollar returned the rate to lows after the growth. And most importantly, it slowed down the upward trend, thereby stabilizing the foreign exchange market.

The yuan’s restraint against the dollar is more related to trade negotiations, which are scheduled to take place from August 19 to August 31. At the same time, the USD/CNY rate actually acts as a leverage for China, reflecting the intensity of trade risks and market sentiment.

In the context of the exacerbation of the US – China trade tension, the possibility of growth of this pair above the levels of 7.100 and 7.150 is not excluded. So, in the conditions of achieving some results, we should expect a decrease to the support levels: 7.000 and 6.900.

Anton Hanzenko