Trump returns to the White House, the RMB exchange rate plummets by thousands of points! Will another 18% reduction be needed to offset the impact of tariffs? Author Investment Insights
Investment Insights – The 2024 presidential election in the United States is coming to an end, and Trump took the lead in winning a majority of more than 270 votes to be re-elected as President of the United States. Trump’s deal ignited enthusiasm on Wall Street, with the dollar rising above 105 and the yuan’s exchange rate falling below 7.2.
November 6th,The US dollar against the yuan (USD/CNH) once rose to over 1,000 points during the day. As of press time, it was trading at 7.2009, with an increase of 1.39%, the highest level since early August.
[USD to RMB exchange rate, source: Investing.com]
The US dollar against the onshore renminbi (USD/CNY) reported 7.1775, up 1.03% on the day, and the US dollar index (DXY) rose 1.81% on the day to 105.30, which was the first time it rose above the 105 mark since early July.
The market generally believes that policies such as comprehensive tariffs, tightened immigration controls, and large-scale tax cuts supported by the second Trump administration will bring higher inflation and government deficits, which will limit the space for the Federal Reserve to cut interest rates. , U.S. bond benchmark yields rose, and the U.S. dollar strengthened.
At the same time, in response to Trump’s policy preference for higher tariffs on China, analysts believe that the Chinese authorities may tend to weaken the yuan to maintain export growth.
At the end of 2019, the RMB exchange rate against the US dollar was about 10% lower than at the beginning of 2018, when the United States announced its tariff plan, and on a trade-weighted basis, the RMB exchange rate was down 4% against all currencies.
Analysts at Capital Economics said that the U.S. restrictions increased the effective tariff rate on all Chinese exports by 2.4 percentage points, which means that the depreciation of the yuan is enough to offset the impact of tariffs.
The agency analyzed that,Under the upcoming Trump 2.0 administration, the RMB exchange rate may need to depreciate by 18% against the US dollar to fully offset the impact of the 60% tariff policy that the United States will implement on China. That is, the RMB exchange rate needs to reach 8.5. This was the case during the Asian financial crisis in the 1990s. A level never seen before.
However, it should also be noted that in order to prevent the intensification of capital outflows, the Chinese government tried to prevent the yuan from depreciating to 7.3 earlier this year.
Pan Gongsheng, governor of the People’s Bank of China, emphasized at the end of September that guidance on expectations should be strengthened.Prevent the foreign exchange market from forming unilateral consensus expectations and realizing them themselves, guard against the risk of exchange rate overshooting, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
Jerry Chen, an analyst at Jiaqiang Group, said that before and after the U.S. election, market volatility in various asset classes may increase significantly.In the medium to long term, the impact of the U.S. election on financial markets will gradually fade and return to policy implementation and economic fundamentals.
Some foreign exchange traders said that the current consensus in the foreign exchange market is thatWith China’s introduction of a package of incremental policies worthy of China’s economic fundamentals, the valuation of the RMB exchange rate is expected to rise steadily.However, due to Trump’s booming trading since October, which has caused the dollar to rise, the popularity of the yuan has been suppressed.
Original link