The idea of former President Donald Trump re-entering the White House has rekindled concerns within the financial markets, particularly regarding his proposed tariff policies on Chinese imports. Analysts from Nomura have provided insights that suggest a significant potential rise in the USD/CNH currency pair, which might rise as much as 11% if these tariffs are enacted. Their analysis is not merely conjectural; it draws upon historical trends observed during Trump’s previous tariff implementations from 2018 to 2020.
During these prior tariff periods, a marked correlation was established where each increment of $10 billion in tariffs would lead to an increase in the USD/CNH exchange rate by approximately 1.7%. This historic reflection sets the stage for Nomura’s current expectations, forecasting that Trump’s ambitious proposal of a 60% tariff could push the USD/CNH rates to new heights, resulting in a 10.7% increase, alongside a 6.9% depreciation of the Chinese yuan against a trade-weighted basket.
The Strategic Implications for Currency Trading
Following these projections, Nomura’s foreign exchange strategists have articulated a strategy of maintaining long positions on the USD/CNH pair. Their reasoning hinges on the anticipated actions of Chinese authorities, who might permit the yuan to depreciate further in response to any tariffs to cushion the economic blow. Should these policies take effect, analysts predict the spot USD/CNH could approach the critical 8.0 threshold, compelling traders to act in anticipation of this shift.
Furthermore, Nomura’s U.S. economics team has hinted at the possibility that such tariff measures could unfold as early as the first half of 2025. Given the timing, investors are already repositioning portfolios to mitigate exposure to the yuan, considered one of the currencies most susceptible to a tariff-centric policy agenda.
Risks and Countermeasures: The Chinese Perspective
Despite the potential for a substantial market reaction, Nomura emphasizes the inherent risks surrounding this outlook. A pivotal wildcard is the forthcoming presidential election, where a victory by Kamala Harris could defuse some of the speculative pressures on the USD. Additionally, any rollout of stimulus strategies by the Chinese government could further undermine the expected strength of the USD against the yuan.
There is a peripheral concern that China might strive to stabilize the yuan through negotiations. However, historical precedence suggests that such a strategy is unlikely. China’s past economic maneuvers, particularly its attempts to redirect exports through third-party countries, show a familiar pattern of adaptability, even amid external pressures.
The proposed tariffs by Trump suggest a tumultuous environment for the USD/CNH currency pair, warranting vigilant scrutiny by investors. While opportunities to profit from potential currency movements exist, the educated anticipation of economic strategies on both ends—U.S. and China—will ultimately dictate the navigational course for currency traders. The intricate dance of policies, tariffs, and currency strategies paints a complex picture that demands a cautious yet proactive approach.