This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Is there concern about the impact of the trade war on the Chinese yuan?
Raj Dhall: The biggest thing we have seen so far in terms of the dollar versus the Chinese yuan is the rise in market price. No matter how much (US President Donald) Trump decides to slap on tariffs, it doesn’t seem to be reflected in the movement of the USD/CNH pair. So, I think we are just seeing a tit-for-tat war with trade, and what is going on in currency markets at the moment.
Sam Morton: Yes, I think so. I think it has been a very positive week this week, to see the US MCA – the trade agreement between Canada, the US and Mexico. So, we can expect the focus to shift back toward the Chinese yuan and the US dollar, because Canada, the US and Mexico are happy now. It’s a great agreement for the countries involved, and now we can start looking at the Chinese currency and where it could go from here.
Is the dollar-yuan pair a good benchmark for the state of the US-China trade war?
SM: I definitely think the dollar-yuan is a very good benchmark. The Chinese economy is really suffering from this trade war because it exports so much. The trade deficit between the US and China is $360 billion, or thereabouts, which is really impacting China. This is also reflected in their stock index – if you look at the Shanghai Composite, it’s trading at two-year lows. The index has really taken a beating and is feeling the impact of the trade wars.
The US dollar has been holding strength for now because it looks like they’re winning, but I think that the damage is going to come in the long term, rather than having an immediate impact like the Chinese yuan has seen.
RD: In terms of a barometer for the trade wars, for me, it’s actually the commodities prices. If the demand for commodities from China lessens or slows down, then we will definitely see problems in commodities prices. That’s why, when it comes to the trade war, I try not to look at dollar-yuan so much. Especially because – being a bit of a devil’s advocate here – it could be manipulated and whatnot. Whereas copper and iron prices are a bit more of a barometer.
You could also look at markets like the Aussie dollar as well – the Australian economy relies on exports to China, so we’ve seen such a dramatic fall in the Australian dollar. It has been breaking wave lows on a weekly basis. This means that it’s maybe one to watch out for if you do want to watch the markets and find a barometer for the trade wars.
Get more insights from the #IGForexChat
If you’d like to find out more about the potential ramifications of the trade war on forex markets, watch the full interview, or choose an area that interests you:
- Why are China and the US pursuing tariffs, rather than using other tools?
- Why has Trump been more aggressive with China than other trading partners?
- When will the US trade war with China end?
- Who do you think will be the biggest winners and losers of the trade war in forex?
- Is the US dollar still a good safe haven?
- How are European rate rises impacting trading?
- How do you trade global policy?
- What is the future of the Aussie dollar and commodities?
- Where do you see Brexit impacting the pound over the next 12 months?
- What impact could a return to the Italian lira have on the EU?
Join us for the next #IGForexChat on Thursday 18 October, where we will discuss the EU summit, and what Brexit means for the pound and other currencies.