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The USD/CNY and USD/CNH are expected to stay below the psychological 7 mark in the run-up to the Trump-Xi summit set for November 30 – December 1. Both pairs will likely rally through the 7 level if the Trump-Xi summit fails to deescalate ongoing tensions between the world’s two largest economies, according to the latest research report from Scotiabank.
Bloomberg reported in the early morning on Tuesday that the US is preparing to announce by early December tariffs on all remaining Chinese imports if a G-20 meeting between US President Donald Trump and Chinese President Xi Jinping fails to ease the trade war, citing three people familiar with the matter.
Risk aversion intensified on fears of reignited US-China trade war that has led to a drag on the economic growth. It imposes mounting depreciation pressure on the yuan while preventing the 10-year UST yield from rebounding for now, the report added.
The US economy expanded at an annualized rate of 3.5 percent between July and September after the 4.2 percent pace in the previous quarter, with signs that the growth could cool in the coming months.
Consumer spending, which accounts for more than two thirds of US economic activity, grew by 4.0 in the third quarter on the back of plentiful jobs and tax cuts. However, a stock market retreat if it deepens would noticeably curtail personal spending and economic growth, known as the wealth effect.
In addition, businesses remain hesitant to increase spending despite the large corporate tax cut enacted late last year, with business investment growing at a modest 0.8 percent annual rate in the third quarter. Meanwhile, China’s economic slowdown could worsen in the month of October, with official manufacturing PMI likely to slide a bit further towards the 50 threshold from 50.8 in September.
"However, we believe the central bank will step in if necessary to curb one-way speculation on the yuan depreciation," the report commented.
