Recent insights from Nomura strategists have suggested that the USD/CNH currency pair may witness a significant rise of approximately 11% should former President Donald Trump make a political comeback and enact his proposed tariffs on Chinese imports. This speculation is framed within the context of previous economic patterns observed during Trump’s initial presidency, particularly during the implementation of tariffs in 2019. Such tariffs historically demonstrated a direct correlation with the value of the Chinese yuan against the U.S. dollar, thus prompting strategic financial positioning among investors.
During the course of Trump’s earlier tariff rounds, each $10 billion imposed in tariffs had resulted in an average increase of 1.7% in the USD/CNH exchange rate. Scaling this insight to Trump’s recently suggested 60% tariff would presumably elevate the USD/CNH rate by 10.7%, while simultaneously depreciating the yuan by about 6.9% against a trade-weighted basket. This past performance serves as a critical framework in Nomura’s forecast, leading them to advocate for long positions in the USD/CNH as they anticipate a deliberate depreciation of the yuan by Chinese authorities to mitigate the repercussions of any reinstated tariffs.
Nomura’s foresight implies a potential progression towards the USD/CNH reaching the 8.0 level, urging investors to consider a possible timeline where tariff measures might manifest as early as the first half of 2025. However, this viewpoint does not exempt Nomura’s analysts from acknowledging the inherent risks entwined in such predictions. A notable concern is the prospect of stimulus measures from the Chinese government, which could counterbalance the depreciation dynamics. Furthermore, the political landscape surrounding vice president Kamala Harris’s candidacy presents another variable that could temper the U.S. dollar’s strength and consequently mitigate potential surges in the USD/CNH pair.
Another dimension of risk comes from the slim possibility that China may implement strategies to stabilize its currency as part of diplomatic negotiations. This scenario, albeit unlikely based on historical trends, showcases the complex interplay in currency markets influenced by geopolitical shifts. Notably, even if China were to find ways to navigate tariffs through redirected exports, such measures would not completely insulate the yuan from the anticipated market response triggered by Trump’s potential re-election and trade policy.
As we observe market behavior, investors are increasingly adjusting their positions with the anticipation of a Trump-led resurgence, positioning the Chinese yuan as one of the most susceptible currencies amidst a return to aggressive tariff policies. The landscape of international trade and currency valuation remains dynamic and fraught with complexities, mandating vigilant observation as potential political developments unfold.