The Impact of Trump’s Proposed Tariffs on the USD/CNH Currency Pair
According to Nomura strategists, the USD/CNH currency pair could experience an 11% rise if former U.S. President Donald Trump is re-elected and implements his proposed tariffs on Chinese imports. This projection is based on historical data from Trump’s previous tariff periods, which showed that every $10 billion in tariffs led to an average 1.7% increase in the USD/CNH exchange rate.
Key Findings:
- Trump’s proposed 60% tariff could result in a 10.7% increase in USD/CNH and a 6.9% depreciation of the yuan against China’s trade-weighted basket (CFETS).
- Nomura’s FX strategists maintain a long position on the USD/CNH pair, expecting the Chinese authorities to allow RMB depreciation to counter the impact of Trump tariffs.
- Spot USD/CNH could approach the 8.0 level if tariffs are imposed, with tariff measures anticipated by the first half of 2025.
Risks and Considerations:
- Potential risks to this outlook include a surprise stimulus from the Chinese government or a win by U.S. Vice President Kamala Harris, which could weaken the broad USD and limit the upside for the USD/CNH pair.
- There is a slim chance that China could stabilize the currency as part of a negotiation strategy, but historically, this has been unlikely.
- Despite efforts by China to redirect exports through third countries, Nomura still expects a significant market reaction if Trump wins the presidency and enforces his proposed tariffs.
Investors are already positioning themselves for a potential Trump victory, with the USD/CNH seen as one of the most vulnerable currencies under his tariff-centric policy approach.
Analysis of the Potential Impact
The analysis provided by Nomura sheds light on the potential implications of Trump’s proposed tariffs on the USD/CNH currency pair. Understanding these findings is crucial for investors and individuals alike, as it can have ripple effects on various aspects of the global economy and financial markets.
What does this mean for investors?
- Investors with exposure to the USD/CNH pair should closely monitor developments related to Trump’s proposed tariffs and be prepared for potential market volatility.
- Those considering new investments should factor in the projected rise in the USD/CNH exchange rate and the depreciation of the yuan when making decisions.
How does this affect the average person?
- Changes in the USD/CNH pair can impact import/export prices, which may lead to fluctuations in consumer goods prices and overall inflation rates.
- The strength of the USD relative to the yuan can also influence international trade dynamics, affecting job markets and economic growth in various sectors.
By staying informed and understanding the potential consequences of Trump’s proposed tariffs on the USD/CNH pair, individuals can make more informed financial decisions and better prepare for any market shifts that may occur.