Fundamental Forecast for CNH: Bearish
- US and China’s tariffs will enter effective next week; more are likely on the way.
- In the near term, corrections may be seen in the Yuan while the bearish trend holds.
- The Caixin PMI gauge may reflect smaller firms’ conditions, which is PBOC’s top focus.
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The Chinese Yuan lost more than 1000 pips both onshore and offshore against the U.S. Dollar[2] this week, amid the PBOC’s RRR cut[3] as well as the on-going US-China trade war[4]. Clouds around the Chinese stock market remained as well: The Shanghai Composite Index dropped -1.47% this week. The weak Yuan contributed to losses in Chinese equities, especially dragging down airline stocks.
The Chinese Yuan and equities may continue to bear bearish pressure in the coming week, from the US-China trade battles. On July 6, the U.S. customs will begin to charge additional tariffs on $34 billion Chinese goods[5]. China plans to retaliate on the same amount of U.S. goods on the same day. Based on US President Trump’s threat, this will lead to another around of battles, on additional $200 billion goods.
Signals have hinted that the time frame of this war has expanded. China has prepared itself for U.S. tariffs attacks: it will lower imports of agriculture products, aquatic products, energies, and raw materials from Asian countries, effective on July 1. In specific, the tariff on soybean will be cut from 3% to 0%. Soybean is one of the major U.S. products that
