CNH: USD/CNH Holds Above 6.7000, No Clarity on US Tariff Decision
USD/CNH peaked just above 6.7300 in early London trading yesterday. We dipped as far as 6.7000, but track above 6.7100 in early trade today.
- Today's data calendar is devoid of any macro releases (just SWIFT CNY payments data on tap).
- There should be focus on the CNY fixing though, given yesterday's weaker than expected outcome (a +27pip surprise in USD/CNY terms).
- Onshore reports point to a renewed focus on boosting infrastructure investment, via lending support and a step up in fiscal spending.
- In the US, the administration still seems split around tariff policy. Overnight, US Trade Representative Tai reiterated her position that tariffs give the US leverage in negotiations and that the US shouldn't walk away from this position.
- US Treasury Secretary Yellen and the Commerce Secretary have both stated lower tariffs could help bring down inflation pressures, although the broad consensus remains this will be with a decent lag (i.e. beyond 6 months).
- In any event, a decision on tariffs isn't expected in the near term, with Reuters reporting earlier this week that any announcement by Biden was unlikely ahead of next week's G7 meetings.
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CNH: CNH Firms On Tariff Talk
Lower US tariffs on Chinese exports could spur a further sharp recovery in CNH, but it remains to be seen if relief is delivered ahead of US mid-term elections.
- CNH firmed in early London trade as US President Biden stated that he will review tariffs with Treasury Secretary Yellen when he returns to the US later this week.
- USD/CNH dipped sub 6.6600 but we didn't see a great deal of follow through selling by the market and we open around this level this morning.
- There may be a degree of skepticism in the market as to whether tariffs will actually be lowered ahead of mid-term elections in the US in November.
- Bringing down inflation is the Biden administrations top priority, but two studies by the Peterson Institute suggest that the positive impact on inflation would be negligible in the near term (-0.3ppts of annual inflation), with larger benefits taking longer to materialize (9-15 months out).
- With minimal near-term inflation benefit, the Biden administration may be unwilling to be seen as softening its stance on China ahead of the mid-term elections.
- This is also not the first time Biden has mentioned the possibility of lower tariffs. Nevertheless, it will likely remain a strong focus point for USD/CNH watchers in the near term.
- The USD/CNY fix will also be watched today. Yesterday saw a modest downside fixing surprise in USD/CNY terms (-25pips).
