Key Points:
The USDCNH pair surged to 7.2677 from 7.2473 after President-elect Donald Trump announced plans to impose tariffs on China, Mexico, and Canada.
This increase highlights the mounting pressure on the yuan as markets react to the potential impact of heightened trade barriers.
Picture: USD/CNH consolidates near 7.2588 after a bullish spike, as traders eye upcoming Chinese PMI data for direction, as seen on the VT Markets app.
The pair has seen a bullish run earlier in the session, peaking at 7.2728 before pulling back to consolidate around 7.2588.
Despite efforts by the People’s Bank of China (PBoC) to stabilise the yuan, the currency remains under strain as the USD strengthens amid geopolitical tensions.
The PBoC set firm USD/CNY fixings around 7.19, over 500 pips away from the spot rate, signalling its determination to curb excessive depreciation expectations.
The broader trade-weighted value of the yuan has seen little change since Trump’s election victory earlier this month, underlining the PBoC’s active management of currency dynamics.
Nevertheless, market participants are wary of the ripple effects of Trump’s protectionist rhetoric, with the yuan’s resilience now tied to Beijing’s capacity to counter external shocks.
Trump’s unpredictability, coupled with the ongoing trade rhetoric, leaves market participants cautious. While Treasury Secretary nominee Scott Bessent has advocated for a calibrated approach to tariffs, the immediate market reaction underscores scepticism.
The yuan’s response to these dynamics will likely remain a focal point for traders in the weeks ahead.
With USDCNH breaching key levels, traders are eyeing the next phase of policy signals from both the U.S. and China.
See also: Dollar Index Holds Despite Market Caution
The PBoC’s interventions are likely to persist, but the extent to which these efforts can offset external pressures will shape the pair’s trajectory.
Further strengthening of the USD could prompt renewed speculation about yuan depreciation, adding layers of complexity to China’s economic management.
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