skip to main content
Close Icon We use cookies to improve your website experience.  To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy.  By continuing to use the website, you consent to our use of cookies.
Global Search Configuration

The latest escalation in US-China trade tensions has already put additional depreciation pressure on RMB FX. It is increasingly likely that our target 7.5000 will be reached as soon as autumn.

If China were to offset the announced additional tariffs by the US via RMB depreciation only, we suspect USD/CNH would need to reach as high as 7.65. So far, we have merely based our analysis on what degree of RMB depreciation is needed in order to compensate for the potential loss of trade competitiveness as a result of tariffs.

But what will happen to RMB FX if Trump finally chooses to invoke the International Emergency Economic Power Act (IEEPA) and implement additional trade, investment and financial restrictions on China?

Obviously, an implementation of certain restrictions (empowered by IEEPA) on China will negatively impact China's foreign portfolio inflows. As a matter of fact, foreign inflows into onshore assets have decreased notably from CNY627bn in 1Q 2019 to CNY133bn in 2Q 2019, driven by a significant decline in equity inflows (chart 1).

China Insight 0903  

 

In our view, from now on, any sign suggesting an increased likelihood of use of IEEPA inevitably will force foreigners to massively withdraw their investments from the asset markets in mainland China. As a result, RMB depreciation pressure will intensify. In this case, we wouldn't be surprised by a fall in RMB to 8.00 at least against USD in Q1 2020 (chart 2).

China Insight 0903   

 

For more insight subscribe here

Any questions? Speak to a specialist

Would you like to request sample data or analysis from Informa Financial Intelligence? 

See how our tailored solutions can help you gain a competitive advantage: